* Stocks hit 3-mth low on German move to tighten
regulations
* Euro down, just above four-year lows as jitters remain
* Foreign selling in Asia highest since Oct. 2008
* South Korea also pressured by politics
* Defensive sectors utilities, telecom outperform
By Umesh Desai
HONG KONG, May 20 (Reuters) - The euro erased initial gains
and edged lower on Thursday to trade above the previous day's
four-year lows as political divisions in Europe and fears of
more market regulation kept investors on edge and pressured
stocks.
Investors pushed Asian stocks lower with exporter's shares
pulling Japan's Nikkei average <> to a new three-month
low. The index struck an 11-week closing low on Wednesday after
Germany's move to stamp on speculative trading.
The yen <JPY=>, which usually gains during heightened
uncertainty and risk aversion, rose early which hurt exporters'
shares. That rise does not augur well for high-yielding
currencies like the Australian dollar <AUD=>, which is down
more than 4 percent this week.
Germany's surprise ban of naked short-selling in some
securities spooked financial markets and hammered the euro to a
four-year low against the dollar. []
The unilateral step suggested Europe remained unable to
form a united front in addressing its debt crisis. It worried
investors by increasing uncertainty over market regulation.
Worries about the crisis intensified in recent weeks and
risk-averse investors have begun pulling out of Asian stocks.
Credit Suisse said in a report their foreign investors'
selling in May for emerging Asia outside China and Malaysia is
already the highest monthly aggregate since October 2008.
It said that if the pace of selling sustains for the rest
of the month there could be net sales of $14 billion, compared
with the high of $17.5 billion in August 2007, during the bear
market.
"We have seen a large amount of money come in and we are
beginning to see some of that trickle out," said Bratin Sanyal,
head of Asian equities at ING Asset Management in Hong Kong who
manages $2.4 billion.
"With global turmoil and growing risk aversion we are
seeing some money being pulled out and flowing back into their
home markets."
The MSCI index of Asia-Pacific shares outside of Japan
<.MIAPJ0000PUS> fell 1.4 percent to a new three month low. It
has now fallen 7 percent this week and nearly 10 percent this
year. Industrials <.MIAPJIN00PUS> and materials <.MIAPJMT00PUS>
shares were the biggest losers.
INSTABILITY TO STAY
Wall Street slipped on nervousness about the disarray in
Europe and on worries the crisis would hurt growth. That came
on the heels of losses in Europe for the third in four
sessions.
"Investors are entitled to be a little hesitant about
putting a toe into the shark-filled waters," said Richard
Morrow, director at E.L. & C. Baillieu Stockbroking. "Only one
thing is certain: this volatility is likely to stay around at
least in the short term. This is a trader's market."
The euro was down half a percent on the day at $1.2352
after rising as high as $1.2433 earlier in the day on trading
platform EBS.
It rebounded from a four-year low of $1.2143 on Wednesday
on speculation European monetary officials might move to check
its rapid fall. However, Eurogroup Chairman Jean-Claude Juncker
said in Tokyo that he did not see the need for immediate
action. []
The Australian dollar <AUD=D4> steadied against the dollar
at $0.8449 with speculators turning defensive following week
long selling. It has lost more than 4 percent this week.
Australian shares gave up initial gains as Wall Street's
drop weighed and worries remained that Europe's problems could
hurt economic growth. The benchmark S&P/ASX 200 <> was
down 1 percent, wallowing at a 9-month low.
South Korean assets were dealt an extra blow by rising
tensions in the Korean peninsula as Seoul exchanged tough
rhetoric with its northern neighbour over the cause of a navy
ship sinking that killed 46 sailors from the south.
The benchmark KOSPI stock index <> fell 0.7 percent
and the Korean won <KRW=> dropped to its lowest this year. But
South Korean debt was firm amid the risk aversion.
Souring risk appetite also drove demand for safe haven U.S.
Treasuries with the yield on the benchmark 10-year note
<US10YT=RR> easing to 3.36 percent after rising 2 bps the
previous day on euro jitters.
ING's Sanyal said that aversion was a good omen for
defensive sectors.
"Some of the unloved sectors should do well. Telcos and
utilities have performed poorly and are underowned. With the
fear factor coming back into the market they should do well,"
he said.
The MSCI sector indexes for telecom <.MIAPJTC00PUS> and
utlities <.MIAPJUT00PUS> were flat on Thursday, outperforming
the broad market.
(Additional reporting by Sonali Paul in MELBOURNE; Editing by
Jan Dahinten)
