Asian stocks were in deep trouble again yesterday, led down by Tokyo, with nervous investors bracing for key US price data as the US central bank warned anew of the dangers of inflation.
Dealers said the reverse may have started out early last month as profit-taking in markets at record or multi-year highs but it now looks to be something more serious -- a sustained sell-off gathering a momentum of its own.
Tokyo, one of recent best performers, highlighted that worry, falling 4.14 percent for the worst single-day loss since the Sept. 11 attacks on the US. That leaves the market down 13.1 percent for this year and down 19 percent from its early April peak.
Sentiment was additionally hit by Bank of Japan governor Toshihiko Fukui's surprise admission that he had invested in the fund of Yoshiaki Murakami, who was arrested last week on charges of insider trading.
"Compared with the US market, Tokyo share prices have risen much more in the past year, so once shares started to fall, the spiral of declines is much worse here," said Masatoshi Sato, senior strategist at Mizuho Investors Securities.
Sato said the impact of the Fukui story was made worse because investors are so preoccupied with what the central banks will do on interest rates.
All eyes are now on the US Federal Reserve, which appears increasingly ready to hike rates to head off inflation even if that means slower economic growth.
This is a deadly combination for stocks as companies face higher funding costs while returns on their investment falter, encouraging investors to put their money in safer instruments such as bonds or bank deposits.
After a series of warnings from Fed chairman Ben Bernanke and other officials, Wall Street got another dose on Monday from Sandra Pianalto, president of the Federal Reserve Bank of Cleveland who said the inflation picture, if sustained, exceeded her "comfort level."
Wall Street lost 0.91 percent in the fallout, jangling nerves of investors waiting for US factory and consumer price figures due yesterday and today for a lead on the likely Fed course at the end of this month.
Hong Kong, down 2.48 percent, was hit by the double whammy of Wall Street and Tokyo, its two most important leads, with some dealers talking of panic selling at one stage.
"The market extended its losses ... as Japan's slump triggered panic selling. Investors have become over-sensitive ... on fears that the markets will see a further correction," said Kingston Lin, associate director at Prudential Bache Securities.
In Mumbai, share prices collapsed through the key 9,000 points level with a loss of 5.09 percent in intraday trade as foreign investors, who had driven the market to record highs on only May 10 showed no sign of returning.
"Domestic funds, until recently aggressive equity buyers, have booked profits. This has left Indian markets without any support," said a dealer with a state-run development bank.
India hiked rates only last week, while Seoul was down 2.90 percent, with sentiment there also hit by a central bank tightening.
In Sydney, down 2.56 percent, it was the same story even if some dealers said the correction had been expected given the market's record-breaking run.Singapore was also down 1.93 percent in late trade, along with Jakarta, off 2.73 percent.
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