Stocks across Asia fell even after the US Senate passed a modified version of a $700 billion economic rescue plan.However, the dollar remained better bid against other major currencies.
HONG KONG- Asian stocks fell and safe haven assets such as government debt gained after the U.S. Senate's approval of a massive bank bailout plan failed to dispel the deepening worries about the global economy.
Doubts about whether the U.S. House of Representatives will now approve the revised $700 billion rescue plan for the
financial system also weighed, after their unexpected rejection of an initial package on Monday sent global markets reeling.
However, the dollar remained better bid against other major currencies after the financial crisis this week started taking a bigger toll on European banks and worldwide growth.
Investors are bracing for comments on the financial crisis from the European Central Bank, which meets later in the day amid expectations it will keep interest rates on hold.
"This is clearly positive news but there's still the lower house vote, so there is little room for optimism. Even if the bill is passed, worries remain over the global economic outlook so financial markets are unlikely to stabilise," said Masamichi Adachi, a senior economist at JPMorgan Securities in Japan.
"It's a completely different world now. All the things U.S. authorities are doing now are simply aimed at preventing a global meltdown. They might trigger a short rally in markets but won't offer a fundamental solution," he said.
The MSCI index of Asia-Pacific stocks outside Japan fell 0.7 percent, erasing a modest gain immediately before the U.S. Senate vote, while Tokyo's Nikkei average fell 1.1 percent.
South Korean stocks were among the biggest decliners with a 1.4 percent fall, while other markets such as Australia, Hong Kong and Taiwan fell less than 1 percent each.
STEEP STOCK SLIDE
Asian stocks have fallen in each of the previous five months, culminating in a 17 percent drop in September that marked the biggest monthly decline since the financial crisis a decade ago.
The inability to gain traction on Thursday came even after the U.S. Senate voted 74 to 25 in favour of a revised bailout package aimed at reinvigorating frozen worldwide credit markets and interbank lending.
The U.S. House of Representatives is expected to vote on the bill on Friday and, if approved, it would go to the White House for signature into law by U.S. President George W. Bush.
Given the uncertainties, investors preferred to play it safe. The U.S. Treasury 10-year note erased earlier losses to edge up, sending yields down to 3.73 percent, compared to 3.74 percent late in U.S. trade on Wednesday.
Gold also advanced, trading at $872.30 an ounce, up from a notional close of $868.75 on Wednesday.
Continued signs of weakness in the U.S. economy -- including data on Wednesday showing U.S. factory activity shrank in September to its lowest since the 2001 recession -- bode ill for a global economy that depends in good measure to the largesse of the U.S. consumer.
"Market expectations for Asian growth was a bit too strong at the start of the year. Asian currencies will weaken against the dollar," said Kit Wei Zheng, an economist at Citigroup in Singapore.
"The weakness in the rest of the world has not been priced in and currencies will move to reflect that in the coming months. It will be a story of the rest of the world weakening rather than a rebound in the U.S. dollar."
The dollar index, a a gauge of performance against six major currencies, rose 0.1 percent to 79.783. That was near a one-year peak struck last month but off a high of 80.025 hit before the Senate vote.
The euro dipped 0.3 percent to $1.3975 and was near a one-year low of $1.3882 struck last month, amid expectations the European Central Bank still has room to cut rates at some point, which would erode the euro's yield advantage over the dollar.
Europe is becoming a point of focus for global investors as the credit crisis hits European financial institutions such as Fortis, which was rescued by a 11 billion euro bailout on Sunday.
Oil was up 74 cents at $99.27, down from earlier gains to as much as $100.37 as concerns remained over weakening demand and growing supplies in the United States.
Date created : 2008-10-02