FRB: GLOBAL MARKETS-Stocks tank, yen surges as US auto bailout fails
By Kevin Plumberg
HONG KONG, Dec 12 (Reuters) - Asian stocks slumped more than 5 percent on Friday after the collapse of a $14 billion rescue plan for ailing U.S. automakers threatened to further damage the world's biggest economy, sending investors scrambling to the safety of government bonds and the yen, which hit a 13-year high.
Major European stock markets were expected to fall as much as 5.3 percent in early trade, according to UK financial bookmakers, as the unraveling rescue plan worsened investor sentiment around the world.
The suddenness of the move in the dollar/yen, which pushed the U.S. dollar below the sensitive level of 90 yen, fed concern that Japanese officials would enter the market to stabilise their currency.
Investors bailed out of stocks and piled into U.S. Treasuries, knocking the benchmark 10-year yield to the lowest in more than five decades, as bargain-hunting that had helped to drive up shares in the last week dried up in the face of a worsening global economic outlook.
U.S. stock futures pointed to a much lower open on Wall Street, with S&P 500 futures down 5 percent, after the U.S. Senate failed to reach a last-ditch compromise to bail out automakers, effectively killing any chance of congressional action this year.
Because of their shared suppliers and vendors, some economists fear the failure of one Detroit manufacturer could drag down the other two as well as many other businesses, throwing more people out of work, putting more pressure on the banking system and likely deepening the U.S. recession.
The collapsed bailout led to weakness across commodities, everything from copper to crude and rubber, as investors speculated on the impact to the global supply chain that fuel the so-called Big Three car manufacturers -- Ford Motor Co, General Motors Corp and Chrysler LLC.
'What the failure of this deal does is that it will set back sentiment not only in the U.S., but also set back sentiment globally. There is going to be further risk aversion going forward,' said Joseph Tan, chief Asian economist with Credit Suisse in Singapore.
The MSCI index of Asia-Pacific stocks outside Japan fell 5.1 percent, essentially cutting this week's gains in half. The index is down 56 percent on the year, easily the steepest decline since the gauge started in 1988.
Japan's Nikkei share average sank 5.6 percent, snapping four days of gains.
Shares of Toyota Motor Corp were off 10 percent and Honda Motor Co off 12.5 percent on worries about massive disruptions in the U.S. economy if one or more of its automakers collapse.
Hong Kong's Hang Seng index was down about 7 percent, weighed by shares of commodity-related companies. Shares of PetroChina, Asia's top oil and gas producer, tumbled 10 percent as crude prices dropped.
RISK, ONCE AGAIN, IS SOLD
Even before the automaker deal fell apart in the U.S. Senate, Asian shares had already been under pressure because of unease about the shrinking financial sector and economic malaise.
Bank of America Corp said it plans to cut up to 35,000 jobs over the next three years, while JPMorgan's chief executive described the bank's performance in the last few months as 'terrible.'
'It shouldn't come as a surprise that Asian equity markets are selling off today on news of the U.S. auto bailout failure,' said Tim Rocks, equity strategist with Macquarie Securities in Hong Kong.
'For Asia, the major issue is how much damage is being done to earnings and balance sheets, and we won't know until February when companies announce fourth-quarter earnings,' he said.
The rapid shift out of risky assets on Friday propelled the yen higher. The U.S. dollar fell as low as 88.40 yen, the lowest since 1995, before recovering to around 89.75 yen.
The yen's spike prompted Japan's top financial diplomat, Naoyuki Shinohara, to say the currency movements were too volatile and the moves in the foreign exchange market were being watched with concern. However, Shoichi Nakagawa, the country's finance minister, said it was not considering intervening, according to Bloomberg.
The last time the Bank of Japan intervened in the market, on behalf of the Ministry of Finance, to cap the yen was in 2004.
'Without an intervention, the dollar could hit 85 yen, so Japan will likely intervene to prevent that from happening,' said Masafumi Yamamoto, head of foreign exchange strategy with Royal Bank of Scotland in Tokyo.
'The worst case scenario for Japanese authorities is that the yen's appreciation pushes down Japanese share prices which will further aggravate of the economy, and they see it happening now.'
In the bond market, the yield on the benchmark 10-year note , which moves in the opposite direction of the price, slipped to 2.48 percent, the lowest in more than 50 years.
Maturities of less than a year traded at barely any yield at all, with the 3-month bill yield flitting between 1.5 basis points and zero. Year-end is usually a time when global investors and corporates pile into the highly liquid short-term U.S. debt market to keep cash safe and dress up balance sheets.
However, the ferocity of the global economic slowdown this year has made 2009's prospects particularly grim.
U.S. light crude for January 2009 delivery tumbled $2.08 to $45.90 a barrel, creeping back down toward a four-year low of $40.50 hit earlier in the month.
Remarks from OPEC President Chakib Khelil overnight about the need for a big cut in production increased speculation among traders that supply will be cut by 1-2 million barrels per day.
((For the state of play of Asian stock markets please click on: ))
(Additional reporting by Xi Chen; Editing by Kim Coghill) Keywords: MARKETS GLOBAL
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