* World economy feared in recession, emerging markets at
risk
* Yen at 13-year high vs dollar with safety most important
* Oil gains on expectations OPEC will slash output
(Updates prices)
By Kevin Plumberg
HONG KONG, Oct 24 (Reuters) - Asian stocks slumped on
Friday, led by a 7 percent drop in South Korean shares, as the
global economic slowdown and emerging market instability hurt
an array of corporate outlooks, pushing up government bonds and
the yen.
The financial crisis has spread far beyond the banking
sector, with electronics maker Sony Corp and U.S. online
retailer Amazon.com Inc <AMZN.O> cutting their forecasts in the
face of weakening consumer demand.
The stronger yen, which this week rose the most against the
U.S. dollar in a decade, has been particularly damaging to the
competitiveness of Japanese exporters as it curbs their
overseas profits when they are brought home and erodes the
competitiveness of their products.
Fears about potential sovereign debt default in some
developing economies has accelerated a move out of emerging
market assets and increased an unwillingness among investors to
take risks.
"Players are now focused on emerging markets as the credit
crisis takes its toll on them," said Mitsuru Sahara, senior
manager of foreign exchange sales for Bank of Tokyo-Mitsubishi
UFJ in Tokyo. "Nobody is willing to take risks under the
current circumstances, and risk aversion will only accelerate,"
he said.
The MSCI index of Asia-Pacific equities traded outside of
Japan <.MIAPJ0000PUS> fell 4.1 percent to a fresh 4-year low
and was on track for its eighth weekly loss.
South Korean stocks have been especially hit hard this year
with the benchmark KOSPI index <> poised for the biggest
weekly decline since the 1997 Asian financial crisis. The index
was down 7 percent on the day, falling below the
psychologically key level of 1,000 points for the first time
since June 2005.
"The 1,000-point level has a lot of meaning for the Korean
stock market. It took 16 years to get there and the level
collapsed just in a year, with investors completely losing
confidence about economy and government bailouts," said Kim
Seong-ju, a market analyst at Daewoo Securities in Seoul.
Japan's Nikkei share average <> fell 7 percent, down
for a third day after earlier touching a 5-year low, and
shrugging off late gains on Wall Street []. Sony <6758.T>
slumped 12 percent and was one of the biggest decliners in the
index.
DOLLAR AND YEN RULE
The U.S. and the yen have strengthened significantly since
the financial crisis broke in August 2007, particularly in the
last month, as investors in Japan and the United States cut
overseas investments and brought money back home.
A lot of this investment had gone into government bonds,
with money managers figuring the backing of the world's two
largest economies was the closest thing to safety. State Street
Global Markets, which tracks 15 percent of the world's
tradeable assets, said capital flows from institutional
investors into sovereign bonds were the highest in the 7-year
history of its data.
Many of these investors have been keeping their capital in
dollars. "In a market where discretionary traders are on the
sidelines, scared by volatility and the expense of trading,
these institutional flows are likely to have an even greater
relative price impact," State Street analysts said in a note.
The yen has also been a beneficiary of investor
repatriation and the unwinding of investment in higher-yielding
currencies.
The euro fell more than 2 percent to a six-year low of
122.75 yen <EURJPY=R> on trading platform EBS. The dollar fell
1.5 percent to a 13-year low below 95.50 yen <JPY=>.
However, the dollar was at a 5-year high against the
British pound <GBP=>, while the euro was down 1.1 percent to
$1.2790 <EUR=>, near a 2-year low of $1.2726 hit on Thursday.
Government bonds in the euro zone, Japan and the United
States have been a haven for investors hoping to wait out the
market turmoil and steep global economic slowdown.
Many economists are expecting rising unemployment in major
economies to curb consumer spending further, especially after
continued U.S. claims for unemployment insurance remained above
the 3 million high watermark for a 26th week and reports that
Goldman Sachs <GS.N> was cutting 10 percent of its staff.
The benchmark 10-year note <US10YT=RR> rose 15/32 in price,
pushing the yield down to 3.63 percent from 3.69 percent late
on Thursday in New York. The 2-year note yield slipped to 1.57
percent from 1.60 percent.
The 10-year Japanese government bond future <2JGBv1> rose
0.54 to 137.65.
Crude oil <CLc1> was a bit higher on expectations that OPEC
will agree to cut output at an emergency meeting later on
Friday after slowing demand and the growing financial crisis
sent prices crashing from record highs set this summer.
Uncertainty about the size of the cut helped to keep gains
limited. U.S. light crude for December delivery was up 54 cents
at $68.38 per barrel.
(Additional reporting by Chikako Mogi in TOKYO and Seo
Eun-kyung in SEOUL; Editing by Jacqueline Wong)
