Markets across Asia plunge

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By YURI KAGEYAMA, AP Business Writer1 hour, 9 minutes ago

Markets in Asia and Europe fell again Monday, extending their slide into a second week as investors worried about a possible global slowdown dumped stocks that had surged in recent weeks.

Also sparking jitters was the yen's jump to a three-month high against the dollar as investors reversed so-called yen-carry trades. A decline in this trading practice, which involves borrowing money at Japan's ultra-low interest rates to invest in higher-yielding assets elsewhere, could hurt global liquidity.

In Tokyo, the Nikkei 225 index fell for a fifth day, tumbling 575.68 points, or 3.34 percent, to 16,642.25 points, dragged down by major exporters such as Canon Inc., Sony Corp (NYSE:SNE - news). and Toyota Motor Corp., whose earnings are eroded by a stronger yen. Since reaching a nearly seven-year high last Monday, the Nikkei index has slid 8.64 percent.

Markets in Hong Kong, Australia, the Philippines, Malaysia, India and South Korea all fell sharply Monday, continuing their declines from last week, when a 9 percent plunge in Chinese stocks on Tuesday triggered cascading selloffs on Wall Street and other global markets.

European markets also opened lower Monday, with Britain's benchmark FTSE 100 down 1.5 percent in early trading, France's CAC 40 sliding 1.8 percent and Germany's DAX sinking 2.1 percent.

"I don't know where the domino effect will stop," said Jose Vistan, research director at AB Capital Securities in Manila, Philippines, where the benchmark index sank 4.5 percent. "Emotions are the ones driving share prices right now."

"Everything takes a back seat relative to the sell-off that we are seeing. It's emotions," Vistan said. "You throw away technicals and fundamentals out the window. Emotions are the ones driving share prices right now."

Hong Kong's Hang Seng index tumbled 4 percent to its lowest since mid-December. Australia's stock market — which had hit records last month — fell for a fifth day, sinking 2.3 percent. South Korea's benchmark index dropped 2.7 percent and Indian stocks fell 4.2 percent.

Investors still seemed risk-averse after the previous week's turmoil.

"When there's such a big market move in such a short period of time, there's that element of surprise and confusion," said Teruhisa Ishikawa, section chief for investors information at Mizuho Investors Securities Co.

Funds and institutional investors tend to go on a selling binge to trim losses in reaction to such market moves, he said, adding that what was ahead was still unclear.

In China, the Shanghai Composite index fell a more modest 1.6 percent, but foreign-currency denominated "B shares" tumbled after officials denied rumors those stocks might be merged with the mainstream Chinese-currency "A shares."

Comments by China's central bank governor and premier suggesting authorities might tighten credit and raise interest rates and bank reserve requirements to combat rising inflation also cast a pall on markets already shaken by last week's volatility.

Signals so far suggest that China is determined to prevent a speculative bubble in share prices, which more than doubled last year and rose to a record high a week ago, investment house Morgan Stanley's chief economist Stephen Roach said in a report issued last week.

"A stock market correction could well be an unavoidable outgrowth of actions aimed at cooling off China's overheated investment sector," Roach said. "More administrative actions can be expected."

Indeed, many analysts see the market selloff as a healthy correction for markets that had risen too far, too fast. China's market had doubled in value last year, for example. In Malaysia, stocks had surged 17 percent since the start of the year before last week's sell-off.

There were also signs that the recent turmoil had caused some international investors to unwind yen-carry trades.

For years, investors have borrowed yen at Japan's near-zero interest rates to buy higher-yield assets elsewhere. But as the yen appreciates, the profits from these carry trades are eroded, prompting some investors to return yen loans, strengthening the Japanese currency.

The yen's appreciation accelerated as its gains triggered stop-loss buy orders early Monday, sending the dollar as low as 115.47 yen, its lowest level since Dec. 8.

"Yes, there was some unwinding of yen-carry trades among short-term players, but basically traders in Tokyo were selling the yen because foreign players wanted to buy it," said Tohru Sasaki, Chief FX Strategist with JP Morgan Chase Bank.

Still, while the Bank of Japan raised interest rates last month to 0.5 percent, they are still far lower than rates in the U.S. or Europe, making the yen-carry trade still an attractive strategy, analysts said.

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Associated Press writers Carl Freire in Tokyo, Teresa Cerojano in Manila, Elaine Kurtenbach in Shanghai and Toby Anderson in London contributed to this report.