HONG KONG (Reuters) - Asian stocks fell and gold rose on Wednesday on investor worries of lower corporate earnings in a weakening global economy, even as money markets continued to heal gradually.
Oil prices were not far from a 12-month low hit on Friday while the yen and U.S. Treasuries climbed, reflecting fears the damage that the financial crisis inflicted on the global economy is still working its way through the system.
Quarterly reports have begun to trickle in, with JPMorgan Chase & Co (JPM.N: Quote, Profile, Research, Stock Buzz) and Merrill Lynch (MER.N: Quote, Profile, Research, Stock Buzz) set to post their results this week. Investors will be focused on the outlook and whether most expectations for a rebound in 2009 will have to be reined in.
"While the financial system crisis appears to be heading in a positive direction, the economy appears to be increasingly bad, and this is raising worries about company earnings. We still don't know how much these might be hit," said Hiroaki Osakabe, a fund manager at Chibagin Asset Management.
Japan's Nikkei share average .N225 fell 1.4 percent in early trade after rising 14.2 percent on Tuesday, its largest single-day gain ever. Automaker shares were the biggest drag on the index, with Honda Motor Co (7267.T: Quote, Profile, Research, Stock Buzz) stock down 5.6 percent and Toyota Motor Corp (7203.T: Quote, Profile, Research, Stock Buzz) 4.8 percent lower.
The MSCI index of Asia-Pacific stocks outside of Japan .MIAPJ0000PUS fell 2.7 percent and is down 12 percent so far in October.
Hong Kong's Hang Seng index .HSI slipped 2.4 percent, snapping a two-day 14 percent rally.
This week the biggest and most direct effort yet by policymakers around the world to thaw short-term lending markets has had some success, particularly in slowing plunging global equity markets. Money market pressures were easing slowly and the risk of a system-wide failure has passed for now.
Governments around the world have ushered in a new, uncertain era in banking, having pledged about $3.2 trillion to among other things guarantee bank deposits, back interbank borrowing and recapitalize financial institutions.
However, the U.S., euro zone and Japanese economies are all widely expected to slip into recessions, threatening growth in emerging markets.
"As a result of the growing economic/earnings pessimism risk trades could come back to the fore more quickly than many anticipate," strategists with Calyon in Hong Kong said in a note.
"The U.S. dollar may not benefit as much as it has done over recent weeks as it appears that the bulk of deleveraging-related repatriation flows have been undertaken, as well as the fact that market pessimism is once again being directed toward the U.S."
The yen rose broadly on renewed unwillingness among investors to take risks and coinciding with a fall in U.S. stock futures.
The euro lost 0.7 percent against the yen to 138.12 and dropped 0.4 percent against the dollar to $1.3560. The U.S. dollar fell 0.5 percent from late New York trade to 101.57 yen.
Japanese government bonds were mixed, with short-term yields falling as investors took heart from the Bank of Japan's emergency meeting to restore liquidity to the strained yen money market.
The two-year yield, which moves in the opposite direction of the price, was down 3.5 basis points at 0.805 percent. The benchmark 10-year yield was flat at 1.575 percent, holding below a three-month peak of 1.630 percent reached the previous day.
U.S. Treasury debt prices recovered after falling sharply on Tuesday on worries about increased government borrowing needs as a result of bank rescue packages.
The benchmark 10-year yield slid to 4.04 percent after hitting a three-month high of 4.09 percent on Tuesday.
San Francisco Federal Reserve President Janet Yellen warned in a speech the U.S. economy appeared to be in a recession and that job creation could struggle for months or even years. The futures market reflects a 92 percent chance the Fed will reduce interest rates to 1.25 percent from 1.5 percent this month.
U.S. crude oil futures were down 0.7 percent to $78.10 a barrel after a 3 percent decline overnight on expectations for slowing demand.
Gold rose 0.8 percent in the spot market to $842 an ounce and is up 7.1 percent from a month ago.
(Additional reporting by Elaine Lies in Tokyo; Editing by Jean Yoon and Sanjeev Miglani)
