HONG KONG (Reuters) - Asia stock markets retreated for a third straight day on Tuesday as more investors locked in profits on the year-end rally and prepared to close their books on one of the worst years in decades.
The South Korean won and other regional currencies slipped, surrendering some of their gains posted this month as foreign investors have gradually warmed up to investing in riskier assets as market volatility has subsided.
Trading was limited, with Japanese financial markets closed for a national holiday and many market players away from their desks before Christmas and other year-end holidays.
The Shanghai Composite .SSEC fell 2.2 percent after China's central bank trimmed interest rates by 27 basis points, disappointing some investors in a move that was smaller than expected given the aggressive actions by other central banks.
Last week Federal Reserve and Bank of Japan slashed rates to virtually zero in the world's two largest economies and launched more asset-buying plans to ward off a deeper recession.
The array of measures by major central banks have helped calm investors, revive some bank-to-bank lending in strained credit markets and sparked a minor stock rally into year-end.
Governments have also rolled out big spending packages.
But economists at Goldman Sachs warned that the United States would need ongoing fiscal support because the usual economic recovery drivers since World War Two -- such as strong homebuilding, consumer spending on durable goods and corporate inventory restocking -- will be missing in action.
"The U.S. economy needs not only a large package of fiscal stimulus in 2009, but one that provides substantial support beyond next year," they said in a note to clients.
The MSCI index of Asia-Pacific stocks outside Japan .MIAPJ0000PUS dropped 2 percent and is down 54 percent for the year, what would be by far the worst yearly slide in its 20-year history.
But since hitting a five-year low in November, the MSCI index has recovered about 25 percent.
Evidence of the damage inflicted on the global economy continues to pile up.
New Zealand's economy contracted by the biggest amount in eight years in the third quarter, reinforcing the case for more central bank rate cuts.
On Monday, figures showed Japanese exports plunging at the fastest annual pace on record in November, while Toyota Motor Corp (7203.T) said it would post its first-ever annual operating loss. [nCRISIS]
The Toyota news cast a shadow over other automakers, with shares of South Korea's Kia Motors (000270.KS) tumbling more than 8 percent. Continued...
