* Asia stocks drop for 3rd day as investors wrap up year
* S.Korean won, Taiwan dlr slip along with stocks
* Shanghai markets disappointed by modest China rate cut
* Japan holiday limits trading
By Eric Burroughs
HONG KONG, Dec 23 (Reuters) - Asia stock markets retreated
for a third straight day on Tuesday as more investors locked in
profits on the year-end rally and prepared to close their books
on one of the worst years in decades.
The South Korean won <KRW=> and other regional currencies
slipped, surrendering some of their gains posted this month as
foreign investors have gradually warmed up to investing in
riskier assets as market volatility has subsided.
Trading was limited, with Japanese financial markets closed
for a national holiday and many market players away from their
desks before Christmas and other year-end holidays.
The Shanghai Composite <> fell 2.2 percent after
China's central bank trimmed interest rates by 27 basis points,
disappointing some investors in a move that was smaller than
expected given the aggressive actions by other central banks.
[]
Last week Federal Reserve and Bank of Japan slashed rates
to virtually zero in the world's two largest economies and
launched more asset-buying plans to ward off a deeper
recession.
The array of measures by major central banks have helped
calm investors, revive some bank-to-bank lending in strained
credit markets and sparked a minor stock rally into year-end.
Governments have also rolled out big spending packages.
But economists at Goldman Sachs warned that the United
States would need ongoing fiscal support because the usual
economic recovery drivers since World War Two -- such as strong
homebuilding, consumer spending on durable goods and corporate
inventory restocking -- will be missing in action.
"The U.S. economy needs not only a large package of fiscal
stimulus in 2009, but one that provides substantial support
beyond next year," they said in a note to clients.
The MSCI index of Asia-Pacific stocks outside Japan
<.MIAPJ0000PUS> dropped 2 percent and is down 54 percent for
the year, what would be by far the worst yearly slide in its
20-year history.
But since hitting a five-year low in November, the MSCI
index has recovered about 25 percent.
Evidence of the damage inflicted on the global economy
continues to pile up.
New Zealand's economy contracted by the biggest amount in
eight years in the third quarter, reinforcing the case for more
central bank rate cuts. []
On Monday, figures showed Japanese exports plunging at the
fastest annual pace on record in November, while Toyota Motor
Corp <7203.T> said it would post its first-ever annual
operating loss. []
The Toyota news cast a shadow over other automakers, with
shares of South Korea's Kia Motors <000270.KS> tumbling more
than 8 percent.
Data later in the day is expected to show Taiwan's export
orders fell 10 percent in November from a year earlier, what
would be the largest since 2001.
A slew of U.S. economic indicators will also be released
before the holidays, including
The mild risk reduction before year-end, along with worries
about the global recession hurting demand next year, also hit
commodity prices. U.S. crude oil <CLc1> shed 45 cents to
$39.46, while metal futures also fell.
The dollar was down slightly against the euro and other
major currencies, with this year's rebound petering out after
being fuelled by U.S. investor repatriations, the widespread
asset deleveraging and rush to secure short-term dollar
funding.
The euro edged up 0.4 percent from late U.S. trade to
$1.3995 <EUR=>, off a three-month high hit last week.
But against the won, the dollar climbed 2 percent to near
1,335 <KRW=>.
The dollar index <.DXY>, a gauge of its performance against
six major currencies, is still up nearly 6 percent this year
for what would be its biggest gain since 2005.
U.S. Treasuries were little changed in Asia trade due to
the holiday in Japan, where many bond dealers base their
regional operations.
The benchmark 10-year note <US10YT=RR> was flat in price to
yield 2.174 percent, holding near a five-decade low of 2.040
percent touched last week after the Fed reiterated that it was
considering buying longer-term Treasuries.
(Editing by Lincoln Feast)
