Asian stocks savaged as dollar plumbs new depths

3 Mar, 2008, 0736 hrs IST, AGENCIES

HONG KONG: The dollar fell to a record low against a basket of currencies on Monday, dragging Asian stock markets down and compounding worries about a likely U.S. recession and more write-downs in the global financial sector. A sliding dollar boosted safe-haven bonds and sent gold to a record high in Asia.

The dollar fell as low as 73.551 against a basket of six major currencies, taking it to the lowest since the index was started in 1973. It ploughed below 103 yen as a sell-off in Wall Street last Friday spurred an unwinding of carry trades. The falling currency sent spot gold to a record high of $980.75 an ounce but hurt share prices, with Japan's Nikkei average stock price index down 4 percent by 0147 GMT.

Exporters such as Honda Motor Co and Sony Corp were both trampled down more than 4 percent in the rush to get out of the stock market. Asian stocks outside Japan, gauged by MSCI's index , were down 2 percent, with the main Sydney and Seoul indices both off about 3 percent. "This is typical when you get into an early bear market, there are no real positives out there," said David Spry, research manager at F.W. Holst in Australia.

"There are a lot of pressures, but the real issue is around earnings, and profit expectations have been lowered. On top of that you have (rising) interest rates, the U.S. is going to get worse before it gets better, and credit markets are very tight." Global investors have been glued to their screens for months for any sign that the U.S. economic malaise could spread around the world, with a falling dollar undermining Asia's exports and pushing prices for dollar-denominated commodities ever higher.

Last week's testimony by U.S. Federal Reserve Chairman Ben Bernanke, in which he warned some small U.S. banks could fail and signalled more rate cuts might be needed, re-ignited the fears of recession that made January such a bloodbath for equity markets. The latest round of weak U.S. economic data added to those fears on Friday, while a record loss at insurer American International Group Inc underscored worries about more write-downs in the financial sector.

The major indexes fell more than 2 percent and ended the month in the red for the fourth month in a row. It marks the longest string of monthly losses for the Dow and S&P 500 since 2002.

Bernanke is due to speak again on Tuesday and analysts assume he will reiterate his willingness to cut rates even in the face of rising inflation. The Reserve Bank of Australia is expected to lift rates to 7.25 percent from the current 11-year high of 7 percent, while the European Central Bank, the Bank of England, the Bank of Japan and the Reserve Bank of New Zealand are expected to hold steady.

But analysts were wary that ECB President Jean-Claude Trichet would soften his tone. "The risk is that Trichet gives a nod to the deepening credit crunch and the recent signs of softness in the euro area," said Robert Rennie, chief currency strategist at Westpac.

"If so, that could hurt the euro. "On the other hand, the flow of U.S. data this week is likely to be dire, keeping the pressure on the Fed and the dollar," he added. With stocks seeing red, investors looked for reliable returns elsewhere, driving up prices for fixed-income government bonds. The scramble for sovereign debt pushed the yield on two-year U.S. Treasury notes down to 1.588 percent, the lowest since early 2004. Japanese government bond futures also jumped to a fresh one-month high, with March 10-year futures at 138.74.