US recession fears hammer Asian stocks

Stock markets tumbled across Asia on Wednesday and the dollar fell to a 2½-year low against the yen amid heightened fears that the US is falling into a recession.

The onslaught of bad news out of one of Asia's most important trading partners hit markets hard. Bank shares suffered after Citigroup (NYSE:C) and Merrill Lynch said they need $21.1bn of fresh capital, while technology stocks slid on Intel (NASDAQ:INTC)'s cautious outlook for 2008.

The Nikkei 225 stock index shut at a 26-month slow, shedding 3.4 per cent to 13,504.51 with exporters hammered by a stronger yen, which traded at 106.32 against the dollar. Hong Kong shares plummeted 5.4 per cent to 24,450.85 - the worst single-day percentage fall since September 2001 - and Shanghai dropped 2.8 per cent to 5,290.606. India was down over 3 per cent. Commodity-based stocks weighed down the Australian market, which lost 2.5 per cent to 5,809.7. Jakarta shed 5 per cent.

Some of Japan's most successful companies that rely on the US for a large chunk of their earnings suffered badly amid signs American consumers are cutting back on spending. Honda (NYSE:HMC) dropped for the second day this week, losing 4.9 per cent to Y3,100, while larger rival Toyota (NYSE:TM) fell 4 per cent to Y5,310. Nintendo plummeted 8.5 per cent to Y53,800.

Chip-related stocks suffered after Intel presented disappointing fourth-quarter profits and a cautious outlook for 2008. Advantest (NYSE:ATE) dropped 4.2 per cent to Y2,600.

"Everyone is very pessimistic," said Mamoru Shimode, Japan chief equity strategist at Deutsche Securities. "There are also jitters about [Japan's] upcoming corporate earnings season where there are expectations for many downward revisions."

But Brandon Ginsberg, Managing Director at KBC Securities Japan, noted that the ratio of price earnings to growth in earnings is the lowest since 1974, meaning that what investors are paying for the growth rate is cheap.

Mitsubishi UFJ slid 4.7 per cent to Y953 following a report that indicated Japan's largest bank had some Y50bn in subprime-related losses, more than ten times its previous estimate. Mizuho shares sank 8.8 per cent to Y459,000.

It wasn't only Japanese banks hurting. HSBC, which makes about a third of its revenues in North America, dropped 4.5 per cent to HK$115.40. Property shares, which usually benefit on bad US news as that means potentially lower interest rates in the territory because of the Hong Kong dollar's peg to the US currency, also fell. Cheung Kong lost 4.8 per cent to HK$129.20.

Shares of mainland Chinese companies were not immune to the US gloom. CNOOC, the oil company, plummeted 8.4 per cent to HK$12.18. China Mobile dropped 4.6 per cent to HK$119.

In Australia, the mining company BHP Billiton (NYSE:BHP) lost 3.1 per cent to A$37.52 and its smaller rival and takeover target Rio Tinto dropped 3.0 per cent to A$122.96.

In Mumbai, the Sensex index had fallen 3.1 per cent to 19,615.52 by late afternoon, paced by Reliance Industries.