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US recession fears rock Asian stocks

Market Performance * Tokyo, down 3.4 percent. * Hong Kong, down 5.4 percent. * Shanghai, down 2.8 percent. * Seoul, down 2.4 percent. * Sydney, down 2.5 percent. * Taipei, down 3 percent. * Singapore, down 2.7 percent. * Jakarta, down 4 percent.

Fears of a US recession rattled Asian stocks yesterday, with markets falling on news of heavy writedowns in the US banking sector amid hopes for a fresh interest rate cut, dealers said.

The worries about the US economic outlook sent the dollar tumbling to a two-and-a-half-year high against the yen, further jolting the Tokyo market where exporters benefit from a weak currency.

The Tokyo Stock Exchange's benchmark Nikkei-225 index tumbled 3.4 percent to a level not seen since October 2005. The market slid sharply in the afternoon with eyes on the forex market after recouping losses in the morning.

Hong Kong share prices plummeted 5.4 percent. Shanghai, which has been seen as relatively insulated from US economic trouble, dropped 2.8 percent.

Seoul closed down 2.4 percent, Sydney fell 2.5 percent and Taipei slid nearly 3 percent. Jakarta was down more than 4 percent, while Singapore was down 2.69 percent.

"Stocks around Asia are crumbling in anticipation that the US economy, if not entering a recession, is at least slowing down," said Daisuke Uno, chief strategist at Sumitomo Mitsui Banking Corp.

"What is notable is that emerging economies -- which were hitherto considered as being unaffected by the troubles besieging markets of developed economies -- are being impacted," he said.

US financial giant Citigroup said on Tuesday that its fourth-quarter loss was nearly twice as large as expected due to the subprime crisis of rising defaults on housing loans to high-risk customers.

Adding to fears that the world's largest economy is sliding into recession, the US government reported the worst performance in retail sales in six months.

The weak US data, coupled with tame inflation, has raised expectations that the US Federal Reserve will go ahead and lower interest rates, perhaps by a hefty margin, after three back-to-back cuts since September.

By selling, "investors seem to be demanding that the Federal Reserve or the US government take drastic measures," said Masayoshi Yano, senior market analyst at the Tokai Tokyo Research Center.

Japanese Prime Minister Yasuo Fukuda warned that the hefty losses at Citigroup "may affect not only the US economy, but also the world economy."

Referring to the fall in share prices, Fukuda said: "We will analyze it in a calm manner and take measures if necessary."

But Japanese Finance Minister Fukushiro Nukaga urged the market not to overstate the impact of the trouble in the US.

"I think the steady undertone of the world economy remains unchanged," Nukaga told reporters.

The markets briefly rebounded on speculation that the Fed would act ahead of its next scheduled meeting starting on Jan. 29, but hope faded during afternoon trade.

"Whether the market will stage a meaningful rebound will depend much on the upcoming US economic indicators," said Castor Pang, a strategist at Sun Hung Kai Financial Group in Hong Kong.

The US was to release release consumer inflation and industrial production figures later yesterday.

US financial groups will also continue to report earnings, with JP Morgan to make an announcement later yesterday and Merrill Lynch scheduled to release figures today.
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