Asian markets cautious on Europe contagion fears

HONG KONG—Asian markets were mixed on Thursday but trade was cautious after two ratings agencies sounded alarm bells over the potential impact of the eurozone debt crisis on major banks.

Despite new governments taking over in Italy and Greece to push through key reforms, the cost of borrowing for under-pressure countries remained dangerously high with Spain paying record rates at a bond auction.

Tokyo finished 0.19 percent, or 16.47 points, higher at 8,479.63, Sydney rose 0.25 percent, or 10.8 points, to 4,258.2 and Seoul added 1.11 percent, or 20.60 points, to 1,876.67.

Hong Kong fell 0.76 percent, or 143.43 points, to 18,817.47, while Shanghai closed 0.16 percent, or 3.91 points, lower at 2,463.81

Fitch ratings agency warned that the contagion effects on US banks were “potentially large” if the crisis spreads beyond Greece, Ireland, Italy, Portugal and Spain.

It pointed to the risks in France, where banks are being weakened by their own eurozone exposure, while Paris is cutting spending to avoid losing its AAA credit rating.

Fitch said the top five US banks had $188 billion in exposure to France at the end of the second quarter.

Wall Street’s three main indexes ended lower Wednesday following the announcement, with the Dow Jones Industrial Average off 1.58 percent, the S&P 500 down 1.66 percent and the Nasdaq losing 1.73 percent.

Adding to the sense of fear was Moody’s decision to downgrade 10 German public-sector banks, saying they were now less likely to receive state support if needed.

“Contagion from the eurozone debt crisis is spreading quickly, threatening to turn a regional crisis into a global crisis,” Credit Agricole said in a note to clients.

“As highlighted by Fitch Ratings, further contagion would pose a risk to US banks,” it said, according to Dow Jones Newswires.

The warnings highlighted the possible knock-on effects for Asian investors.

“European banks will likely have to continue reducing risky assets,” said Kenichi Hirano, operating officer at Tachibana Securities.

“Asian economies, seen as the engine of global growth, may be damaged… as (European banks) pull their funds out of emerging economies,” he said.

There was a little respite in Europe after Italy’s new Prime Minister Mario Monti put together his new cabinet charged with pushing through legislation aimed at putting the economy back on an even keel.

And in Greece, the newly installed premier Lucas Papademos kicked off talks with international banks on reducing the country’s mountain of debt, after winning overwhelming support from parliament in a symbolic vote of confidence.

Thousands of anti-austerity protestors were expected to demonstrate Thursday in the fledgling government’s first test of public opinion.

Bond yields, meanwhile, remained in or close to the seven percent danger zone considered unsustainable for governments to service their debts.

Italian benchmark 10-year bond yields once again topped 7.16 percent, while Spain – whose massive debt and crippling unemployment has also come into focus – had to pay a record interest rate of 6.975 percent when it raised 3.56 billion euros ($4.8 billion) with 10-year bonds on Thursday.

The interest rate was Madrid’s highest since the creation of the euro single currency, according to Dow Jones Newswires, and it was much higher than the rate of 5.433 percent paid at the last similar auction on October 20.

France also had to pay sharply higher yields at a pair of bond auctions Thursday, with the gaps in borrowing rates on German government bonds and those of France and Spain also hitting the highest levels since the euro’s creation.

European markets slid in morning trade Thursday with London’s FTSE 100 index down 1.42 percent, Frankfurt’s DAX 30 off 1.37 percent, and in Paris the CAC 40 dropped 1.73 percent.

Shanghai dealers were little moved by the Chinese central bank’s announcement that it would “fine-tune” monetary policy, raising hopes that credit restrictions imposed in the past year will be relaxed.

In currency markets, the euro fetched $1.3485 and 103.72 yen, from $1.3451 and 103.70 yen in New York late Wednesday.

The dollar was at 76.91 yen, from 76.96 yen.

New York’s main oil contract, West Texas Intermediate (WTI) light sweet crude for December delivery, rose 16 cents to $102.38 per barrel.

Brent North Sea crude for delivery in January retreated $3.73 to $110.71. Gold was trading at $1,759.26 an ounce by 1130 GMT, compared with $1,773.15 late Thursday.

In other markets:

— Taipei was almost unchanged, nudging 0.29 points higher to 7,387.81.

HTC rose 0.89 percent to Tw$689.0 while TSMC was 0.4 percent higher at Tw$75.7.

— Indian shares fell 1.87 percent, or 314.16 points, at 16,461.71.

The country’s largest private firm Reliance Industries slid 4.51 percent to 806.65 rupees while carmaker Maruti Suzuki India fell 4.44 percent to 948.1.

— Singapore’s Straits Times Index closed down 1.04 percent, or 29.19 points, to 2,778.25.

City Developments fell 2.29 percent to Sg$10.26 and Singapore Airlines shed 1.19 percent to Sg$10.84.

— Bangkok fell 0.37 percent, or 3.73 points, to close at 993.38.

Banpu lost 6 baht to 578, while Siam Cement dropped 3 baht to 323.

— Kuala Lumpur shares fell 0.78 percent, or 11.37 points, to 1,465.47.

CIMB Group and IOI Corp. both fell 2.7 percent to 6.87 ringgit and 5.09 respectively while Genting lost 1.8 percent to 10.68. Public Bank added 0.6 percent to 12.68 ringgit and Maxis rose 0.2 percent to 5.35 ringgit.

— Manila fell 0.16 percent, or 6.96 points, to 4,334.66.

San Miguel was up 1.4 percent at 126.60 pesos and port operator ICTSI rose 1.8 percent to 58 pesos while food firm Universal Robina fell 0.8 percent to 51.90 pesos.

— Indonesian shares ended down 0.6 percent, or 21.84 points, at 3,792.25.

Car maker Astra slid seven percent to 69.400 rupiah, Bank Mandiri fell 1.4 percent to 7,000 rupiah, while BBRI lost 2.2 percent to 6,800 rupiah.

— Wellington closed flat, edging 0.69 points lower to 3,280.73.

Telecom fell 1.0 percent to NZ$2.525, while gaming group Sky City Entertainment rose 0.9 percent to NZ$3.53.

Originally posted at 12:00 pm | Thursday, November 17, 2011