* Bank of Japan rate decision on tap
* Government bond yields edge up but maybe not for long
* Asia stocks fall, oil languishes near $36
By Kevin Plumberg
HONG KONG, Dec 19 (Reuters) - The U.S. dollar fell on
Friday, on track for the biggest weekly decline since 1985,
while oil was pinned near 4-1/2-year lows under $40 after
plunging overnight on a dismal outlook for energy demand.
Tokyo stocks fell 1 percent <> ahead of a policy
decision by the Bank of Japan, which could follow the Federal
Reserve this week in cutting its benchmark rates closer to zero
and taking more unconventional action to make commercial banks
lend to each other.
However, the financial sector still looked shaky, with HSBC
shares <0005.HK> down 7 percent on fears about whether Europe's
largest lender will raise capital or cut its dividend.
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The dollar also remained under pressure after the Fed
indicated this week it has embarked on quantitative easing, the
final option of any central bank in which the financial system
is immersed with cheap funds in an effort to revive lending.
Prospects of an oversupply of dollars on the market and the
belt-busting U.S. fiscal deficit has made dealers dump the
currency.
"A BOJ rate cut with additional steps may slow down the
yen's appreciation against the dollar but the general trend of
dollar weakness is likely to continue," said Masato Mori,
senior manager at NTT Smarttrade in Tokyo.
The dollar, still the world's foremost reserve currency,
had served as a haven for investors during the bloodiest months
of the financial crisis. A persistent decline could have a big
impact on Asian central banks, exporters and companies with
dollar-based revenues.
The euro was up 0.3 percent at $1.4255 <EUR=>, after having
surged overnight to a near three-month high of $1.4720 on
trading platform EBS. The euro has gained a stunning 20 cents
in the last month as the euro zone's interest rate advantage
was expected to hold for a while longer.
The dollar was down 0.2 percent to 89.25 yen <JPY=> and
fell as low as 87.13 yen, its weakest in more than 13 years, on
Wednesday. An overnight bounce frayed the nerves of traders who
are anxious the Bank of Japan could intervene to cap the yen's
rise, but no evidence was found to support such a move.
The trade weighted dollar <.DXY> is down 4.5 percent this
week, heading for its biggest weekly fall since September 1985,
according to Reuters data.
CRUDE, COPPER UNDER PRESSURE
A synchronised deep recession spanning developed economies
around the world has hit emerging markets hard as well, sharply
reducing raw material needs and dragging down prices of
everything from copper to crude. Copper prices on the London
Metal Exchange sank to the lowest in four years on Thursday.
U.S. crude for January delivery fell as low as $35.98 a
barrel on Thursday and recovered some to $36.40 <CLc1>. In the
last few months, oil has crumbled and is down 62 percent this
year.
Asian stocks were set to end of the last full trading week
of 2008 with a whimper.
The MSCI index of stocks in the Asia-Pacific region
excluding Japan <.MIAPJ0000PUS> fell 1.4 percent. The index
plunged 53 percent in 2008, easily the biggest annual decline
since the gauge was launched in 1988.
The region was not able to escape a global slowdown that
accelerated following a shakeup in the structure of Wall Street
banks and a sudden pullback in China's economic growth.
However, some big investors still believe the long-term
outlook of corporate Asia is bright. Battermarch, a unit of
Legg Mason, said it favours Asian stocks related to domestic
demand and infrastructure development.
"Despite the larger Asian economies tending to be more
susceptible than other emerging markets to the global economic
slowdown, due to their trading partnerships, the outlook for
Asia remains positive," said Ray Prasad, a senior portfolio
manager with the firm who helps to oversee $5.2 billion in
emerging markets equities.
Hong Kong's Hang Seng index <> led the region lower,
down 2.3 percent. In addition to HSBC, stocks of Chinese oil
refineries also weighed on the broad market after Beijing
slashed domestic fuel prices.
PetroChina <0857.HK> fell 3 percent and Sinopec <0386.HK>
slipped 1.7 percent.
Longer-dated U.S. government bonds edged lower, as dealers
squeezed what profits they could from a treacherous year for
trading. However, the Fed's plan to buy late maturity
Treasuries and government-sponsored agency securities to lower
borrowing costs will likely support prices in the near term.
The benchmark 10-year yield <US10YT=RR>, which moves
inversely to the price, was at 2.07 percent after falling as
low as 2.04 percent overnight, the lowest since the 1950s.
The yield has slumped around 200 basis points in 2008, with
the lion's share happening in the last month.
(Additional reporting by Kaori Kaneko in TOKYO; Editing by
Dhara Ranasinghe)
