* Risk is abandoned and safety sought
* Fears about disappearing consumer demand hurt exporters
* Gold rises for fourth day, oil back above $125
By Kevin Plumberg
HONG KONG, July 29 (Reuters) - Asian stocks tumbled on Tuesday, after Merrill Lynch, the third-largest U.S. investment bank, said it would take a $5.7 billion write down related to bad debt, draining confidence in the unstable financial sector.
Coming a day after one of Australia's top banks said it would write down more than $1 billion in credit-related losses, the news heightening fears that a year-old financial crises that knocked global stocks into bear market has further to run. [
]Worries that financial sector troubles will further undermine the global economy kept the dollar below Monday's one-month high versus the yen. Gold prices rose for a fourth day and Japanese government bonds surged, pushing the benchmark 10-year yield down to the lowest in three months.
"Equity markets are capitulating on expectations of a deepening of the global banking crisis. Asian and emerging markets are experiencing capitulation due to risk aversion," Sean Darby, chief Asia strategist with Nomura in Hong Kong, said in a note to clients.
Japan's Nikkei share average <
> fell 2 percent, weighed by shares of high-profile exporters like Honda Motor Co <7267.T> and Canon Inc <7751.T> as investors continue to punish companies dependent on overseas demand.Shares in the rest of the Asia-Pacific region also dropped 2 percent, according to an MSCI index <.MIAPJ0000PUS>. The index last week briefly broke above a downward trendline that stretched back to May 19, but has since fallen for three consecutive days.
South Korea's KOSPI <
> dropped 2.9 percent, led by the Samsung Electronics Co Ltd <005930.KS> and LG Electronics Inc <066570.KS>, consumer-oriented companies who last week issued rather grim views of the global economy.Australia's benchmark S&P/ASX 200 <
> slid 1.6 percent, with shares in Commonwealth Bank of Australia <CBA.AX> and National Australia Bank <NAB.AX> down more than 3 percent, while Westpac Banking Corp <WBC.AX> slipped 2.5 percent.Merrill Lynch said it will take a $5.7 billion third-quarter write-down as it unloads huge amounts of risky debt, and will raise $8.5 billion by selling new stock, a move that could dilute the value of existing shares.
The Wall Street investment bank and brokerage announced its plans less than two weeks after posting a $4.9 billion second-quarter loss, hurt by more than $9 billion of write-downs.
NERVOUSNESS AND SECOND GUESSING
"Worries about what's coming out of the woodwork next is going to see market investors take a bit of time to feel more comfortable about the financial sector," said Tony Russell, senior equities adviser at ABN AMRO Morgans in Australia. "There will be a lot of nervousness and second guessing."
The benchmark 10-year Japanese government bond yield fell 4 basis points to 1.525 percent <JP10YTN=JBTC>, the lowest since late April, after safe-haven U.S. Treasury prices rose on Monday.
Corporate credit investors in Asia also began to demand a higher premium for holding debt in an increasingly risky environment.
The Asia ex-Japan iTRAXX high-yield index <ITAHY5UA=GFI>, a key measure of risk aversion, widened by 10 basis points to 535, while the equivalent investment-grade index <ITAIG5UA=GFI> widened by 2 bps to 138, according to BNP Paribas.
Asian spreads remain well below the record highs hit in March in the run-up to the meltdown of U.S. investment bank Bear Stearns, but are still at more than double the levels at the beginning of the year.
Gold, still considered by many analysts and investors as an safer alternative in times of heightened market volatility and inflation, rose 0.3 percent to $932.90 an ounce <XAU=>. Lately, gold has followed the movements of oil prices closely.
Oil prices rose slightly above $125 a barrel <CLc1>, after militant attacks cut Nigerian output and uncertainty deepened about Iran's nuclear ambitions.
The U.S. dollar was down 0.1 percent against the yen at 107.35 <JPY=> after climbing to a one-month high on Monday, above 108 yen. The euro was steady at $1.5743 <EUR=>. (Additional reporting by Geraldine Chua in SYDNEY and Rafael Nam in HONG KONG, Editing by Dhara Ranasinghe)