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Global stocks sag as auto woes stir caution

19/11/2008 - 7:26
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By Eric Burroughs

HONG KONG (Reuters) - Most Asian stocks edged down on Wednesday and regional currencies slid, as a plea from U.S. automakers for a bailout from Washington highlighted how the financial crisis is hurting broad swathes of the global economy.

Major European stock markets were expected to open slightly higher, according to financial bookmakers, after a late rally on Wall Street, but convictions were low and trading volumes slim.

Market players were spooked as executives at Detroit's Big Three gave a dire warning to Congress about their outlook while asking for $25 billion of funds.

Oil was up a tad at $54.50 but still near a 22-month low on mounting worries about a deep global recession, highlighted by data showing confidence amongst U.S. home builders plunging to a record low.

Japan's Nikkei average <.N225> slipped 0.7 percent, driven in part by falling bank shares after No. 1 Mitsubishi UFJ Financial Group <8306.T> suffered a 61 percent drop in quarterly profit and a report said Sumitomo Mitsui Financial Group <8316.T> aimed to raise $4.2 billion in capital.

The MSCI index of Asia-Pacific stocks outside of Japan <.MIAPJ0000PUS> fell 0.3 percent and was not far from a four-and-a-half-year low hit last month. The U.S. S&P 500 <.SPX> had gained 1 percent on Tuesday.

Australia's benchmark S&P/ASX 200 <.AXJO> shed 0.7 percent on a drop in non-financial shares after authorities lifted a ban on short selling.

Troubles plaguing the banking system have yet to abate despite the efforts of central banks to get credit flowing again and problems have now spread to the broader global economy, leading to recessions in Japan, Europe and elsewhere.

Citigroup's plans to slash 52,000 jobs underscored the financial sector woes, with shares of the second-largest U.S. bank still falling to a 13-year low on worries its efforts to return to health may not be enough.

The U.S. housing market collapse at the heart of the crisis showed signs of deteriorating further. The National Association of Home Builders index plunging to a record low of 9 in November. At its peak in 2005, the index reached 72.

"It confirms suspicions of another serious downleg in housing being under way and feeding into an already ugly recession," said Jan Lambregts, head of Asia research at Rabobank in Hong Kong.

Analysts said investors needed clarity on how deep the U.S. recession and global downturn will be before committing funds to battered shares. The MSCI Asia Pacific index has plunged 59 percent so far this year.

EMERGING FX HIT

The South Korean won hit a three-week low and the KOSPI index <.KS11> shed 1.9 percent as market players have kept shedding riskier assets in stocks and emerging markets to minimise losses as year-end approaches.

The weakness in emerging market currencies knocked the Philippine peso down and led to suspected purchases by the country's central bank to prop it up, while the Indonesian rupiah slid to a seven-year low.

Societe Generale emerging markets strategist Patrick Bennet said the rupiah faced a potential crisis of capital flight until the global economy stabilizes and there are some signs of risk-sensitive capital returning.

The yen climbed as falling stocks spurred selling of higher-yielding currencies as investors shifted funds into the relative safety of the Japanese currency as well as the U.S. dollar.

The dollar dipped to 96.70 yen, down from 96.96 yen, where it was late in New York. The euro was steady at $1.2630.

The dollar index, a gauge of its performance against a basket of six major currencies, was steady at 87.125 <.DXY> and held near a 2-1/2-year peak struck last week.

The dollar has been propelled higher by the scramble among banks for dollar funding, as well as portfolio managers and hedge funds dumping assets and boosting cash holdings as they face investor redemptions.

Falling stocks gave a boost to safe-haven government bonds. Japanese government bond futures edged up 0.22 point to 138.83, near a five-week high of 138.87 hit earlier.

The two-year U.S. Treasury yield was at 1.14 percent, near a record low of 1.07 percent touched in 2003 when the Federal Reserve last slashed rates down to 1 percent.

The Fed is widely expected to cut rates to 0.5 percent in December, what would be the lowest level since the 1950s, as it attempts to revive the economy.

(Editing by Alex Richardson)

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