Asian Stock Rout Worsens

Source : The Business Times, August 17, 2007

HONG KONG - Asian stocks headed for their biggest weekly fall in nearly a decade on Friday as stubborn credit fears drove investors away from risky trades despite a dramatic late rebound on Wall Street.

The yen rose, industrial metal prices fell and safe-haven government bonds extended gains as worries that the current market turmoil will hurt global growth further hit investor confidence.

'The biggest concern for Asian markets is whether it will spur a US economic slowdown that will therefore hit consumption,' said Lim Chang Gue, a fund manager at Samsung Investment Trust Management in South Korea. 'If we see tangible signs of this happening, I'm afraid then a worldwide bear market will begin.'

MSCI's measure of Asia Pacific stocks excluding Japan fell 2.5 per cent by 0421 GMT at a fresh 4-month low.

The index was down 10.6 per cent on the week - its worst weekly performance since January 1998. It is now down almost 19 per cent from its July 24 record high and year-to-date gains have been cut to just 3 percent.

Tokyo's Nikkei average dropped 3.3 per cent after touching levels last seen in September, and was down about 7 per cent this week.

Major exporters such as Honda Motor, Canon and Toyota Motor all lost ground despite the late rally on Wall Street.

Speculation of a possible US interest rate cut and talk that Bear Stearns, one of the largest US mortgage bond underwriters, would get funding from a Chinese bank helped the Dow Jones industrial average rally over 300 points in the closing 45 minutes to end only slightly lower.

But Countrywide Financial Corp, the largest US mortgage lender, again worried investors after saying it had drawn down an entire US$11.5 billion bank credit line as the global credit squeeze limited its access to short-term cash.

'Everyone's still scared and many people want to cash out in the short term, so we'll see more selling even into next week,' said Alex Huang, vice-president at Mega Securities in Taiwan.

The yen rose from late New York levels and remained within easy reach of overnight multi-month highs as investors continued to unwind risky trades funded by the Japanese currency.

The dollar bought 112.61 yen after reaching a 14-month low around 112 yen, while the euro fetched 151.13 yen not far off a 9-month low near 150 yen.

Against the dollar, the single European currency was trading at US$1.3416 little changed from late New York levels. It had dipped to a two-month low near US$1.3360 on Thursday.

The Aussie retested a near one-year low against the yen at below 88 yen London Brent crude climbed 18 cents to US$69.95 a barrel, recouping some of the US$2.22-drop on Thursday on worries about slowing economic growth.

Shanghai copper and zinc futures dropped by their 4 per cent daily limit but 10-year Japanese government bond (JBG) futures powered to 17-month highs. -- REUTERS