Credit worries hit global stocks

HONG KONG (Reuters) - Asian stocks fell more than 2 percent on Thursday to two-week lows as investors dumped financial shares on credit fears, while a weak dollar undermined some of the region's top exporters.


Oil fell below $95.70 as stock market losses and fears that the U.S. economy will be hurt by the credit problems spurred investors to lock in profits from a rally that had driven U.S. crude to a record high of $98.62 just a day ago.

The pullback in oil helped cool the surge in gold which peaked at a 28-year high of $845.40 on Wednesday, near its all-time high of $850 reached in January 1980. Spot gold was trading at about $833 an ounce by 3:05 a.m. British time.

The equity sell-off began on Wall Street on news of a probe of the U.S. home loan industry by New York's attorney general and after top U.S. savings and loans firm Washington Mutual warned the housing downturn would extend well into next year.

"There's going to be some ugly days in the U.S. (market). Fairly large losses have been recorded and the markets are saying they want visibility on all these losses and the banks need to come clean on it," said Paul Xiradis, chief executive of boutique fund Ausbil Dexia.

Tokyo's Nikkei average ended the morning session down 2.3 percent at eight-week lows, wiping out all the gains since the U.S. Federal Reserve's 50 basis point rate cut on Sept 18.

MSCI's measure of other Asia Pacific stocks fell 2.5 percent to levels last seen on October 25 and was down nearly 6 percent from the November 1 record high.

"The market is now moving to price in an expected weak opening in New York after results from AIG and Cisco Systems," said Tsuyoshi Segawa, equity strategist at Shinko Securities.

AIG posted disappointing quarterly results after U.S. markets closed on Wednesday, while Cisco Systems' solid results were overshadowed by a cautious outlook. and

Investors scurried to the relative safety of government bonds, fuelling a slide in yields. Japan's benchmark 10-year government bond yield fell as much as 1.5 basis points to a seven-week low of 1.545 percent.

BANKS, EXPORTERS DOWN

General Motors added to stock investors' gloom with its biggest quarterly loss due in part to a deeper-than-expected loss at former finance subsidiary GMAC.

Bank stocks were hardest hit, with Australia's ANZ Banking Group down 5 percent, Japan's Mitsubishi UFJ falling 3.3 percent and Citigroup sliding 5.2 percent.

Exporters were also hammered after the dollar tumbled to a record low against the euro and a basket of major currencies overnight. A weak dollar tends to hurt the value of overseas sales for these exporters.

Japan's Sony Corp, Honda Motor and Samsung Electronics all lost more than 3 percent.

Even Toyota, which posted a 2.7 percent rise in quarterly operating profit and nudged up its full-year forecasts on Wednesday, was not spared, falling 3.4 percent.

Major markets in the region were all down between 1 percent to 3 percent. Singapore and Malaysia were closed for the Deepavali public holiday.

DOLLAR SHAKY

The dollar edged up from a record low against a basket of currencies and the euro but remained under pressure after downbeat corporate news from major U.S. firms such as General Motors.

"Losses at such a major company as GM raises concerns the credit-related woes will affect consumer sentiment and hurt the economy," said a dealer at a large Japanese bank.

Comments from a Chinese official on Wednesday had stoked fears the central bank of the world's fourth-largest economy would reduce its holdings of U.S. assets, sending the dollar diving.

The euro traded at $1.4644, not far off an all-time high of about $1.4730 set overnight and it was at 165.32 yen recovering from a fall to near 164 yen earlier.

Against the Japanese currency, the dollar fetched nearly 113 yen, after a brief dip below 112 yen early in the session.

Investors tend to sell low-yielding currencies such as the yen to fund purchases of higher-yielding assets, but unwind those trades in times of heightened risk aversion.

Markets are now waiting for any soothing comments from Federal Reserve Chairman Ben Bernanke, who is due to testify on the U.S. economic outlook before the congressional Joint Economic Committee at 3 p.m. British time.