* Asia stocks fall 3 pct; auto, resource shares hit
* Oil prices extend falls below $40 barrel
* Shanghai markets disappointed by modest China rate cut
* Japan holiday limits trading
(Updates with European outlook, fresh prices)
By Rafael Nam
HONG KONG, Dec 23 (Reuters) - Asian stocks fell for a third
straight session on Tuesday as a continued retreat in oil
prices below $40 a barrel hit resource-related shares, while
auto makers slumped after Toyota's bleak assessment of the
near-term future.
The uncertain economic outlook continues to bolster
low-yielding but safer government bonds, as evidenced by the
record $38 billion of two-year notes sold by the U.S.
government on Monday for a historic low yield of below 1
percent.
European shares were also set to fall as worries over the
global economy remain. Up next on the global data front is the
final U.S. gross domestic product figure for the third quarter,
with the wait pressuring the dollar in Asian trade.
Shanghai's main index <> fell almost 5 percent after
China's central bank on Monday trimmed interest rates by 27
basis points, in a move that disappointed investors because it
was smaller than more aggressive actions by other central
banks. []
Last week the 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.
"I believe the optimism that we had over the last month has
pretty rapidly come to an conclusion," said Tim Rocks, an
equity strategist for Macquarie Securities in Hong Kong.
"The macro data is just truly awful, the Japanese export
data yesterday was the most frightening thing that I have seen
for a long, long time. The economic data just shouldn't behave
like this."
On Monday, figured showed Japanese exports plunging at the
fastest annual pace on record in November.
The MSCI index of Asia-Pacific stocks outside Japan
<.MIAPJ0000PUS> dropped 3 percent. Though the index is now well
off a five-year low hit in November, it remains down 54 percent
for the year in the worst yearly slide in its 20-year history,
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.
It has been a tough 2008 that has featured the collapse of
Bear Stearns and Lehman Brothers, as well as an unprecedented
wave of rate-cutting, stimulus measures and government support
for the ailing financial sectors.
There is no shortage of poor economic data, and that is
further denting investor confidence. 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,
data on Tuesday showed. []
Asian shares tumbled, with auto makers such as South
Korea's Hyundai Motor <005380.KS> slumping 10 percent a day
after Toyota Motor Corp <7203.T> on Monday forecast its
first-ever annual operating loss in the year until end-March.
[]
Resource-related stocks such as BHP Billiton <BHP.AX> also
fell on worries that a deep global downturn will hit demand for
commodities.
Shares in South Korea <>, Hong Kong <>, Taiwan
<> and India <> fell between 2-3 percent.
Australian shares <> ended the day 0.7 percent lower.
OIL BELOW $40
Oil prices extended their recent sharp falls, falling 51
cents to $39.40 a barrel as investors worry that production
cuts from oil cartel OPEC could take a while to come through.
The United States is expected to confirm later in the day
that the world's largest economy contracted 0.5 percent in the
third quarter, matching an earlier advance estimate.
Caution ahead of the data hit the U.S. dollar, which has
lost the momentum it enjoyed earlier in the year in a
combination of increased risk appetite for foreign assets,
near-zero U.S. interest rates and the liquidation of assets
before year-end.
The euro edged up 0.3 percent to $1.3985 <EUR=>, and also
rose against the Japanese yen, up 0.3 percent to 126.22 yen
<EURJPY=>.
The dollar index <.DXY>, a gauge of the U.S. currency's
performance against six major currencies, edged down 0.1
percent to 81.080 <.DXY>.
However, most Asian currencies fell against the dollar,
tracking the slump in regional shares.
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.
Given all the uncertainty, investors are still opting for
government bonds.
U.S. Treasuries were little changed in Asia trade due to
the holiday in Japan, where many bond dealers base their
regional operations.
That comes a day after investors were willing to buy new
two-year notes despite the low yield, in an indication that the
safe-haven scramble for U.S. Treasuries continues unabated.
(Additional reporting by Eric Burroughs and Xi Chen; Editing
by Lincoln Feast)
