Wednesday November 28, 3:43 PM
Asian stocks hit by U.S. fall and Japanese woes
By Richard Baum
SINGAPORE (Reuters) - Asian investors took a darker view of the global economy on Wednesday, dumping stocks after a corporate failure in Japan and a drop in U.S. consumer confidence and buying U.S. Treasuries on the chance of fresh Fed rate cuts.
A second credit rating agency downgrade this week for Japan contributed to a three percent slide in Tokyo shares, but had the perverse effect of lifting the yen because Standard & Poor's cut by just one notch instead of the expected two or three.
Korean stocks were the worst hit by falls in U.S. shares, diving almost six percent.
Oil prices were a touch weaker as the market watched developments in U.S. plans for Iraq's food-for-oil programme and OPEC's efforts to win bigger production cuts from Russia.
Worries that the rebound in Asian stocks from their lows after the September 11 attacks had gone too far were compounded by U.S. shares weakening on Tuesday following news that consumer confidence there dropped for a fifth consecutive month.
Tokyo shares were also hit by the collapse of heavy machinery maker Niigata Engineering Co Ltd <6011> late on Tuesday, which reminded the market of the precarious state of many Japanese firms.
Shares extended their decline after S&P downgraded Japan's long-term debt ratings by one notch to AA, hard on the heels of similar action by rival agency Fitch two days ago.
The Nikkei 225 share average, which hit a three-month high on Tuesday, tumbled 325.08 points or 2.96 percent to 10,624,81, led by high-tech shares including Canon Inc <7751> and banks.
WEAKER SENTIMENT
"Until just recently, Niigata's failure might have been taken by the market as a sign of progress on the bad-loan mess (at banks). But sentiment is much weaker now and banks are being hit accordingly," said Masatoshi Sato, manager of the equity division at Mizuho Investor Securities.
Other Asian stock markets were also lower following the U.S. decline, with both Hong Kong's Hang Seng index and Singapore's Straits Times Index down over two percent in afternoon trade.
The worst-hit market was South Korea, where shares slumped on Wall Street's losses and local worries that the United States may take its war against terrorism to Iraq.
After hitting a 14-month high on Monday, the Korea Composite Stock Price Index fell 5.68 percent.
While Japanese stocks recoiled on the S&P cut, the yen gained because the downgrade was shallower than many traders had expected, dealers said.
"The yen's rise after a downgrading is actually very unusual," said Hideaki Furumaya, head of the interbank desk at Mizuho Trust & Banking.
"But the market bought back the yen because S&P only downgraded by one notch instead of by as much as three notches, as some had speculated."
JAPANESE BONDS REBOUND
The dollar initially edged up on the downgrade, but quickly fell back to near the day's low of 123.47 yen compared with Tuesday's late U.S. level of 123.95. Japanese bonds also rebounded on relief over the one-notch downgrade.
Meanwhile, the euro touched a two-week high against the dollar at $0.8855. The dollar has faced selling pressure since the weaker-than-expected consumer confidence data, which wiped 1.1 percent off the blue-chip Dow Jones industrial average. The Nasdaq Composite Index fell 0.3 percent.
The currency market paid little attention to remarks by Federal Reserve Governor Laurence Meyer that convinced many bond investors the Fed meant to cut rates further.
U.S. Treasuries rallied in Tokyo and eurodollar futures rocketed after Meyer's comments on the appropriateness of negative real rates.
"His comments confirmed to us that the Fed will ease by about another 50 basis points," said Ron Leven, a strategist at Lehman Brothers in Tokyo.
Two-year notes rose to 99-18/32 in Tokyo to yield 3.00 percent, against 99-13/32 in New York. Yields on the note, which is the most sensitive to market thinking on Fed funds, have fallen 16 basis points so far this week. |
