Friday, August 17, 2007


Asian Stocks Tumble, Yen Gains as Investors Quit Riskier Assets

-- Asian stocks had their worst week in 17 years and the yen gained the most since December 2005 as investors fled high-yielding, or riskier, assets funded by loans in Japan's currency.

The yen gained against all 16 of the most-actively traded currencies today. Toyota Motor Corp. led Japan's Nikkei 225 Stock Average to its biggest one-day tumble since the Sept. 11, 2001, terrorist attacks in the U.S. Hong Kong's Hang Seng Index dipped below 20,000 for the first time in four months.

``The market seems to be saying that it's frightened,'' said Jeremy Hall, who helps oversee $3.5 billion at Henderson Global Investors Ltd. in Singapore. ``It's not sure what it's frightened of, but it's still running anyway.''

The Morgan Stanley Capital International Asia-Pacific Index fell 3.4 percent to 137.32 at 6:25 p.m. in Tokyo. The dollar- denominated index lost 7.9 percent this week, the most since September 1990.

The Nikkei 225 slumped 5.4 percent to 15,273.68, while the Kospi slid 3.2 percent. Key indexes elsewhere in Asia retreated, while Indonesia's market is closed for a holiday. The Hang Seng Index finished 1.4 percent lower at 20,387.13, having earlier plunged as much as 6.2 percent.

Standard & Poor's 500 futures dropped 0.7 percent. Mortgage defaults arising from a U.S. housing recession have prompted banks to rein in lending, draining liquidity from global credit markets and fanning concern the global economy is headed for a slump. About a 10th of stock-market capitalization has been wiped out globally since July 23, when the value of listed companies peaked at $59.8 trillion.

Cash Injections

U.S. stocks gained yesterday, helping the S&P 500 Index recover about $369 billion of value, as banks rallied on speculation the Federal Reserve will lower interest rates. Standard & Poor's 500 futures fell 0.9 percent today, while futures on the Dow Jones Industrial Average lost 1 percent.

The Bank of Japan, which added 1.2 trillion yen ($10.7 billion) into the money market today, has conducted daily injections greater than 1 trillion yen a total of 10 times this year to sustain lending in the banking industry.

It injected 1 trillion yen on Aug. 10 after the Fed and the European Central Bank added more than $100 billion of funds. Australia's central bank added A$3.87 billion ($3.05 billion) today and Taiwan's government said it may use public funds to buy shares.

In the U.S., the Fed added a total of $17 billion in temporary funds to the banking system yesterday. It ``stands ready'' to conduct more operations as needed to ``facilitate trading at rates around the operating objective'' of 5.25 percent, the New York Fed said in a statement.

Stronger Yen

Toyota, the world's largest automaker by market value, slid 7.2 percent to 6,190 yen, the most since Jan. 11, 2001. Canon Inc., the world's biggest digital-camera maker, slumped 8.6 percent to 5,400 yen, the lowest since Aug. 7, 2006. Honda Motor Co., Japan's second-largest automaker, fell 8.2 percent to 3,470 yen.

Investors borrow funds in countries with low interest rates such as Japan to fund purchases of higher-yielding assets abroad, a practice referred to as the carry trade. Volatility in the market increases the risk of those bets and has been a primary reason for investors to pay back their yen loans, boosting the currency's value.

The yen climbed to as high as 111.61 against the dollar today, the strongest since June 2006. Japan's currency recently traded at 113.11 per dollar, having appreciated 4.5 percent this week. Against the euro, the yen strengthened 6.6 percent.

Stoked Demand

The flight from risk has stoked demand for U.S. Treasuries and Japanese government bonds. Yields on two-year U.S. notes fell to the lowest in 22 months this week. Japan's five-year notes had the biggest weekly gain since the government began issuing them in 2000.

Korea Zinc Co., the world's second-biggest smelter of the metal, dropped 8.1 percent to 142,000 won. Mitsubishi Corp., Japan's largest trading company that deals in metals, chemicals and fuel, lost 11 percent to 2,635 yen.

A measure of six metals traded on the London Metal Exchange slumped 6.1 percent yesterday, the most since January 2005. Copper declined 7.8 percent, nickel fell 5.3 percent, and zinc lost 7.4 percent.

Crude oil for September delivery fell 3.2 percent in New York to $71 a barrel, the lowest since June 29. Futures were recently at $71.56 in after-hours trading.

Woodside Petroleum Ltd., Australia's second-biggest oil producer, slid 2.6 percent to A$38.75. Inpex Holdings Inc., Japan's largest explorer, tumbled 9.8 percent to 938,000 yen.

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