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Asian shares fall; cenbanks to slash rates

  Asian shares fell on Thursday as more bad news piled up for the global economy, while the dollar and yen steadied as central banks in the UK and Europe were set to cut interest rates to their lowest in years.

 

Despite a flurry of government measures in recent months aimed at stabilizing financial markets, investor fears of further losses persist.

Japan said on Thursday it may be in a deeper recession than first thought, in the latest signal that the global economic downturn is sparing few corners of the world. Benchmark US Treasury yields hit fresh five decade-lows as fears of a prolonged recession and a slide in Tokyo stocks prompted investors to seek the safety of low-risk government bonds.

Oil prices fell to below $46 a barrel to almost four-year lows, overshadowing bullish weekly US oil stocks data, as investors opt for safer-havens. The US Treasury 10-year yield hit their lowest in five decades, helped as well by expectations for more US purchases of government debt.

Central banks are responding by cutting rates aggressively. The European Central Bank and the Bank of England on Thursday are expected to join countries such as Thailand and New Zealand in slashing borrowing costs. Whether they prove effective remains the question.

“The market may have become used to extremely weak economic numbers and are now wanting to see how dramatic policy actions taken across the globe, including monetary easing, will impact the economy and the stock markets,” said Etsuko Yamashita, chief economist at Sumitomo Mitsui Bank, in Japan.

The MSCI index of Asia-Pacific stocks outside Japan fell 0.4% as of 0440 GMT, turning around after earlier gains of as much as 1.2%. The MSCI index has advanced more than 10% since hitting a five-year low on Nov. 21, but is still down 59% for the year as of Wednesday’s close.

Although Wall Street rose on Wednesday for a second session on the back of defensive stocks seen as riding out a recession, newly released data showed large job losses among US employers and a slumping service sector, suggesting the worst may not be over for the world’s largest economy.

Other economies worldwide are faring no better. A corporate survey in Japan on Thursday signaled the economic performance in the world’s second-largest economy in the third quarter may have been even worse than first reported. Central banks have been cutting rates aggressively. Thailand on Wednesday cut its benchmark by a full percentage point, while New Zealand slashed them by a record 150 basis points to their lowest in five years.

Policy makers are also taking additional steps to stabilize their financial sectors. South Korea and China on Wednesday said they would pump more funds into their financial system to ensure additional liquidity.

Japan’s Nikkei average fell 1.6%, reversing itself after earlier rising as much as 1.3%. Major share indexes in South Korea and Taiwan fell more than 1% each, while Australia was down just 0.1%. But shares in Shanghai rose 3.5%, as financial stocks benefitted from the government’s liquidity measures on Wednesday and amid hopes for more economic stimulus measures. Indexes in Hong Kong and Singapore also advanced.

DOLLAR, YEN STEADY

The euro and the British pound remained vulnerable ahead of central bank meetings later in the day. The ECB is expected to cut rates by 50 basis points, though some are betting it could be as much as a record 75 basis points. The BOE could opt for a full percentage point cut that would bring rates to their lowest in more than half a century. The euro fell 0.1% to $1.2709 from late New York trade, while the sterling edged down 0.1% to $1.4770. Against the Japanese yen, the dollar was flat at ¥93.25, while the euro was also little changed at ¥118.54.

The size of the interest rate cuts being considered are an indication of the weakness of the global economies. Oil prices lost $1.15 to $45.65 a barrel, continuing a slump this week that has seen prices hit their lowest in more than three years. Gold also slipped as the dollar firmed against the euro, trading at $769.85, down $2.65 from New York’s notional close. Other metals were routed: Platinum traded at $791.00 an ounce, or down $2.5.

Low-risk investments such as US Treasuries are benefitting from worldwide risk aversion. The benchmark 10-year notes edged up 3/32 in price to yield 2.645%, down from 2.655% in late New York trade on Wednesday and the lowest level since 1955. The yield has dropped more than 100 basis points in the past month as fear of a protracted recession prompted investors to shift their funds to government debt from more risky assets. (Reuters)