Asian stocks tumbled anew on Friday after the latest salvo of sour signals about the US economy pummeled Wall Street, sending the benchmark S&P 500 down 3 per cent to a 15-month nadir.
Fears about a possible recession in the United States, Asia's biggest export market, also sent government bonds surging to multi-year highs and pushed US crude oil prices below $90 a barrel.
The dollar struggled near a two-and-a-half year low against the yen after US Federal Reserve Chairman Ben Bernanke told lawmakers that more interest rate cuts may be needed to counter a worsening economic outlook.
The Chicago Board Options Exchange Volatility Index, the so-called fear index which measures projected US stock market volatility, leapt 16.7 per cent overnight.
"It's a hopeless situation. Buying appetite is evaporating as more investors are turning pessimistic about the US economy. Markets could continue to fall in the months ahead," said Kim Young-gak, an analyst at Hyundai Securities in South Korea.
Japan's Nikkei average ended the morning session down 2.8 percent after hitting its lowest level since late 2005.
MSCI's measure of other Asia Pacific stocks was down 2.4 per cent by 0300 GMT. The index is already down almost 10 per cent since January 1.
Exporters such as Sony Corp wobbled as investors chewed on a slowdown in US factory activity and a hefty loss at Merrill Lynch & Co Inc .
"Japanese stocks are oversold, but we've got a typhoon, an earthquake and a tsunami coming at the same time," said Hiroichi Nishi, a general manager of equity marketing at Nikko Cordial Securities.
Australian investors, who have already endured their longest losing streak for more than 12 years, sent the benchmark S&P/ASX 200 index down more than 2 percent and into the red for the 10th session in a row.
In Seoul, the Korea Composite Stock Price Index was down 1.9 per cent after hitting its lowest since August 17. But Korean banks beat the trend on hopes of improving lending margins, liquidity and delinquency rates.
OIL, GOLD SLIDE
With fears of a US recession darkening the outlook for the global economy, oil and commodities demand is also looking less rosy.
Gold trickled down towards $870 an ounce after falling around 1 per cent in New York. The safe-haven metal has sagged after Monday's record price of $914, with demand worries compounded by investors selling to cover losses elsewhere.
US crude oil, which topped the $100 barrel mark on January 3, fell 42 cents to $89.71 in Asian trade on concerns a potential recession would dent demand.
"There are concerns about the US economic outlook. There are other factors -- the weather conditions in North America are warm and there has been no significant demand for heating purposes," said Gerard Burg, analyst of National Australian Bank.
The bleak assessment of the US economy was echoed on Thursday by the Fed's Bernanke, who reiterated that the Fed was ready to act aggressively and threw his support behind other efforts to counter the risk of recession.
His comments, combined with patchy earnings and weak economic data, hammered Wall Street and worsened the picture for Asia's exporters, such as Taiwanese tech stocks.
Taipei's main TAIEX share index fell 1.2 per cent after a 4 per cent drop in the previous two sessions.
"The market is a bit over-reacting unless we really see some very bad US technology earnings, and from Bernanke's speech, it seems like the US government will be doing everything they can to help the situation," said Alex Huang at Mega Securities.
Investors took Bernanke's comments as a signal that the US central bank was willing to cut the benchmark fed funds rate aggressively from the current 4.25 per cent later this month.
"The fact that Bernanke indicated the need for aggressive rate easing again led investors to believe that the US economic outlook is very bleak and that the Fed will cut interest rates further after this month," said Minoru Shioiri, senior manager for forex trading at Mitsubishi UFJ Securities.
"That is definitely negative for the dollar," Shioiri said.
The dollar was at 106.75 yen, not far from a two-and-a-half-year low of 105.92 yen struck earlier in the week.
The search for a safe haven bolstered US Treasury two-year notes, pushing their yield down 11 basis points to 2.41 per cent, the lowest in more than three years. The yield on the five-year Japanese government bond also hit a two-year low on Friday, down two basis points at 0.840 per cent. (Reuters)
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