Hong Kong: Asian stocks fell while the yen rose to a two-year high against the euro on Friday on fears the $700 billion financial rescue bill still needing final US government approval may not be enough to keep the global economy from falling into recession.
The flow of credit remained practically frozen in money markets, leading to a scramble for US dollar funding that has the currency on track for its largest weekly gain in 16 years against a basket of major currencies.
The euro remained under pressure after dropping to a 13-month low against the dollar on Thursday on indications the European Central Bank is leaning toward cutting interest rates after recent bank failures threatened the euro zone economy.
Raw materials prices tumbled on expectations that demand from big consumers such as the United States and China will fall. Copper prices were on track for a record decline this week, down around 14%, and oil was down 12.5% for the week, its biggest five-day drop since December 2004.
“Economic concerns are mounting and regardless of whether the bailout plan is accepted in the House later today this will not change,” economists with Calyon said in a note.
“The US dollar is set to maintain a firm tone in the Asian session, especially against European currencies as both economic and financial sector concerns mount.”
Japan’s Nikkei share average fell 1.2%, led by shares of car makers Honda Motor Co and Toyota Motor Corp following a big drop in US sales earlier this week.
“With the US auto sales down about 30%, it’s become clear that financial problems are finally spreading to the real economy,” said Takahiko Murai, general manager of equities at Nozomi Securities in Tokyo.
The MSCI index of Asia-Pacific stocks outside of Japan slipped 0.8% and were off 6.9% on the week. Regional equity markets have outperformed the All-Country World Index, which sank 8.8% this week to the lowest in three years
Hong Kong’s Hang Seng index dropped 2.6%, dragged down by bank stocks as tight lending conditions spread fears one of Asia’s main financial hubs would be hit hard.
The euro was down 0.3% to 145.15 yen after earlier slipping below 144.88 yen to the lowest in two years, as investors continued to find refuge in the yen and the Swiss franc.
The dollar slipped 0.3% at 105 yen and was down 0.3% to 1.1320 Swiss francs The euro was steady against the dollar at $1.3830 after dropping to around $1.3750 on Thursday.
The main focus on Friday would likely be the vote in the House of Representatives on the White House plan to buy up illiquid securities from battered financial firms. The Senate passed a modified version of the bill on Thursday, which included tax cuts for businesses and consumers.
Political brinkmanship continued in Washington after the House shook markets earlier this week by rejecting the bill and passage in the House was anything but certain.
Government debt was still the safest bet for investors increasingly intolerant of having risk in their portfolios.
The 10-year Japanese government bond future was up 0.6 point to 137.89, rising for a second day.
The 10-year US Treasury note was unchanged on the day, fighting off early losses, for a yield of 3.62%. The highly liquid bills market, which investors have been using as an alternative source of short-term investment, saw solid demand.
The 1-month bill yield which moves in the opposite direction of the price, slipped 4.5 basis points to 0.20%.
The November US light crude contract fell 55 cents to $93.42 a barrel, creeping down toward the 7-month low of $90.51 a barrel hit on 16 September.