* Asian stocks slump on fears about global economy,
earnings
* Credit spreads surge on Argentina pension move
* Dollar hits 2-yr high vs basket of currencies
* Oil slumps to below $70 a barrel (Repeats to more
subscribers)
By Kevin Plumberg and Rafael Nam
HONG KONG, Oct 22 (Reuters) - Asian stocks slumped to their
lowest since December 2004 on Wednesday as poor U.S. corporate
results and falling commodity prices fanned worries of a
protracted global economic slowdown.
The U.S. dollar surged to a two-year high against a basket
of currencies on expectations that central banks around the
world will react to slowing growth in their economies by
catching up to this year's deep interest rate cuts by the
Federal Reserve.
European stock index futures pointed to drops of up to 2.6
percent in early trade, darkening the outlook for global equity
markets.
The cost of protection against defaults in Asian debt
spiked to records after Argentina moved to take over its
private pension system, and as fears over debt defaults rocked
confidence in emerging markets.
Some Asian companies have been caught off guard by how much
credit markets have tightened, which constrains their access to
capital, as well as the pace at which global demand has
dropped.
"As the credit crunch has worsened, wholesale business
inventories have risen, causing an alarming rise in inventories
in Asia and emerging markets at a time when seasonally these
are usually being drawn down," said Sean Darby, chief Asia
strategist with Nomura in Hong Kong.
"We would expect earnings to be further revised down within
Asia and global emerging markets," he said in a note.
Losses in Asian shares accelerated in the afternoon, with
Japan <> ending down 6.8 percent, and South Korea <>
slumping 5.1 percent.
Mitsubishi UFJ Financial Group's <8306.T> shares, which
recently invested in Morgan Stanley <MS.N> dropped 8.8 percent
after the Nikkei business daily said Japan's top lender will
sharply cut its half-year net profit estimate.
The MSCI index of Asia-Pacific stocks outside Japan
<.MIAPJ0000PUS> declined 5.1 percent, at one point touching its
lowest since December 2004.
Hong Kong's Hang Seng index <> dropped 2.9 percent,
with CITIC Pacific hit for a second day after warning of nearly
$2 billion in potential losses from unauthorised currency
trading. CITIC Pacific shares fell a further 6 percent after
losing half of their market value on Tuesday.
Earnings estimates for Asia-Pacific companies excluding
Japan in 2009 have already fallen for four consecutive months,
according to Thomson Reuters data. In the last month to Oct.
16, forecasts fell 3.44 percent, the biggest monthly decline
since November 2001.
Companies in Hong Kong, Singapore and Taiwan were all
expected to post falling earnings this year, but were still
seen having double-digit growth in 2009, according to global
estimates tracker IBES.
EMERGING MARKET SELLOFF
The cost of protection against a default in Asin debt
surged amid concerns about the deteriorating health of emerging
markets. Pakistan, for example, is feared to be in critical
condition due to dwindling foreign exchange reserves.
That has raised fears about policy responses in emerging
markets, especially following news on Tuesday that Argentina
will take over its $30 billion private pension system in order
to guarantee payments to retirees. []
A key measure of risk aversion, the iTRAXX investment-grade
index <0#ITAIGMPBMK=> widened by about 40 basis points (bps) to
380. The equivalent high yield <0#ITAHYMPBMK=> index jumped
some 100 bps to as high as 1,200, both marking new records,
according to a Hong Kong-based trader.
The worsening mood comes despite massive cash injections,
bank bailouts and interest rate cuts by central banks and
governments.
On Tuesday, the Federal Reserve unveiled Washington's
latest step to end the crisis, saying it could lend up to $600
billion to buy certificates of deposit and commercial paper
from money market funds. []
The weaker outlook for the global economy is hitting
commodities as well. U.S. crude oil futures <CLc1> slid $3 to
$69.17 a barrel, on mounting worries that expected output cuts
by producer group OPEC will not be enough to offset weakening
global demand.
FRANTIC FOREX TRADE
The euro fell 1.7 percent to $1.2831 <EUR=> after dropping
as low as $1.2740 on trading platform EBS, a fresh 20-month
low. Sterling was down 2.5 percent at $1.6255 <GBP=D4>, after
sliding as low as $1.6201, its lowest since September 2003.
The dollar index, which measures the greenback's value
against a basket of six currencies, was up 1.5 percent to
85.658, after rising to 85.921, the highest since November
2006.
Trade was frantic, with bid/ask trading spreads much
farther apart than usual, indicating very illiquid trade.
Investors reacted to the sliding equity prices by moving
into the safety of government debt, with Japanese government
bond futures up a full point.
December 10-year JGB futures rose by a full point to 136.65
<2JGBv1> and the 10-year JGB yield fell 4.5 basis points to
1.540 percent <JP10YTN=JBTC>.
(Editing by Kim Coghill)
