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Amid Asian turmoil, Japan stocks dive 9.38%

©

Latest update : 2008-10-08

In what amounts to the worst crash in two decades, the Nikkei share index plummeted 9.4%, bringing losses for the past five days to 19%. Shares elsewhere dropped as much as 10%.

HONG KONG - Asian stocks plunged, with Japan's Nikkei dropping by the most since 1987, while the yen surged on Wednesday as fears of a global recession snowballed with no sign of a coordinated response or an end to the worsening financial meltdown.

Government debt prices jumped as the equity selloff reached a fever pitch and investors snatched anything resembling stability on an increasingly grim outlook, especially after Federal Reserve Chairman Ben Bernanke warned turmoil in markets could cause U.S. economic activity to be subdued into 2009 and signalled a readiness to cut interest rates.

Credit markets brushed aside surprise policy easing by Hong Kong's monetary authority and a radical shift in U.S. central bank policy to allow it to lend directly to companies.

The cost of protection against debt default soared in Asia as the rates banks charge each other climbed, further prohibiting the flow of credit through the global money system.

"The deteriorating outlook for the economy and the deepening financial crisis are pushing fears to their limit," said Mitsushige Akino, chief fund manager at Ichiyoshi Investment Management in Japan.

Tokyo's Nikkei share average plummeted 9.4 percent, the largest single-day percentage decline since October 1987. That brought losses for the past five days to 19 percent.

Shares of Toyota Motor Corp fell 11.6 percent after a company source said the world's biggest car maker will likely cuts its annual operating profit outlook.

Australia's S&P/ASX 200 index slid 5 percent, a day after rallying on a much larger-than-expected interest rate cut by the country's central bank.

The MSCI Asia-Pacific index of stocks outside of Japan was down 7.8 percent, the largest decline since October 1997, according to Reuters data.

The index has fallen a staggering 26 percent in a month and 49 percent so far this year, underperforming the MSCI all-country world index, which has fallen 37 percent year-to-date.

Hong Kong's Hang Seng index fell 5.5 percent to a 28-month low after a market holiday on Tuesday while Indonesian stocks tumbled 10 percent before authorities called a trading halt.

Bernanke's sobering and candid tone in a speech on Tuesday about the likelihood of interest rate cuts came days after European Central Bank President Jean-Claude Trichet prepared markets for lower borrowing costs.

However, with the upcoming Group of Seven rich nations meeting on Friday, investors have begun to anticipate broader action to snuff out what has become a global calamity.


TIME TO STEP UP

A host of actions by various governments -- including a series of bank rescues, the establishment of a $700 billion U.S. rescue fund, emergency measures by European governments and massive injections of funds by central banks around the world -- has so far failed to stop the increasing dysfunction of the financial system or keep the global economy from a potential recession.

The UK government was set to announce its own bank rescue package, which will likely include a major capital injection, while the Bank of England is expected to cut its base interest rate by a half-percentage point after it meets on Thursday.

"Markets are confidently pricing cuts and have done so for some time. But surely, it is time to step up and not merely match those expectations and do so immediately but to go further in an effort to engender some confidence," Patrick Bennett, Asia foreign exchange and interest rate strategist with Societe Generale said in a note.

At the epicenter of the crisis, credit markets reflected worsening conditions. In Asia excluding Japan, the bids on the iTRAXX index of high-yielding credit default swaps shot up to around 775 from 710 on Monday, dealers said. Trading was very thin, however, with low confidence among traders about prices.

Meanwhile, the yen has emerged as clear favourite among investors amid soaring market volatility.

The dollar dropped around 1.4 percent to a six-month low of 100.23 yen after briefly dipping to around 99.60 yen.

The euro sank 1.7 percent to 136.37 yen holding above a three-year low of 135.05 yen also hit this week.

Japanese 10-year government bond futures rallied 1.25 points to 139.55, having risen for three of the last four days.

U.S. Treasury debt prices rose steeply as the selloff in Asian shares gained momentum. The benchmark 10-year yield which moves in the opposite direction of the price, fell to 3.44 percent from 3.51 percent late on Tuesday in New York.

Like other developed bond markets, the difference of the 10-year yield over the 2-year yield -- also called the yield curve -- has been growing sharply over the last month as dealers anticipated a cut in the Federal Reserve's target rate.

In the last month, the U.S. yield curve has steepened by 64 basis points to the most since June 2004.

Date created : 2008-10-08

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