HONG KONG - ASIAN stocks dropped by around 5 per cent on Monday, led by exporters, and the yen surged to a 2-year high against the euro as investors doubted a scattered European response to the financial crisis and a US$700 billion (S$1 trillion) US bank bailout could prevent a deeper slump in the global economy.

The need for stability drove up US and Japanese government bond prices, especially after a report on Friday showed the US economy in September shed the most jobs in 5 years.

Major European stock markets were expected to open as much as 4.7 per cent lower, according to financial bookmakers, after Germany had to scramble to organise a rescue deal for lender Hypo Real Estate after an initial deal crumbled. The euro dropped to a 13-month low against the dollar below US$1.36 JPMorgan and UBS economists have already predicted the world economy will slip into recession next year, using a common definition of annual growth in global gross domestic product at or below 2.5 per cent.

Saul Eslake, chief economist with ANZ Bank in Sydney, does not predict a world recession but sees it as a growing risk.

'The fact that a lot of emerging market economies run current account surpluses insulates them to a degree from the consequences of what's going on in the global financial system,' he said. 'But they have real economy leakages through their exports and that means they have not decoupled and never were.'

Japan's Nikkei share average ended down 4.25 per cent, at its lowest close since February 2004. Sectors that derive their revenues mainly from exports, such as electrical equipment, machinery and auto makers, led the index lower.

The MSCI index of Asia-Pacific stocks outside Japan slid 5.35 percent to the lowest since December 2005.

Hong Kong's Hang Seng index was down 3.35 per cent, with shares of China Mobile, China Construction Bank and HSBC paving the way lower.

'There's just nothing positive out there. Figures are bad in the States, Europe's bad, Japan's bad and China's probably slowing,' said David Spry, research manager at broker FW Holst in Melbourne.

No unity in Europe

South Korea's KOSPI was down 4.3 percent, led by shares of Samsung Electronics Co Ltd and POSCO, the world's fourth-largest steelmaker.

Korea's markets have been one of the hardest hit by a wholesale move by foreign investors away from perceived risk in Asia. The country's growing current account deficit has turned off investors, and news that local banks were having trouble securing foreign-currency loans added to negative sentiment on the region's fourth-largest economy.

Korea had US$198 million in net equity capital outflows lastweek, relatively light compared with prior weeks, while Taiwan-related funds, a former hotspot for investors, saw its 17th consecutive week of outflows, according to Nomura.

China is the only mutual fund market in Asia that had two straight quarters of net inflows from funds, with US$3.9 billion in new money in the third quarter, the firm said.

The euro was down 3 per cent at 140.48 yen after earlier dipping to a 2-1/2-year low below 140 yen. Against the yen, the dollar dropped 2 per cent to 103.19 yen after dropping below 103 yen to a near five-month low.

The euro fell 1.1 per cent to US$1.3617 and earlier fell as low as US$1.3595.

The Australian dollar fell sharply on expectations the Reserve Bank of Australia will have to cut interest rates aggressively later this week when it meets to bolster its economy. The Australian currency was down 3.2 per cent against the US dollar and the yen.

Oil prices fell US$2.50 to around US$91.40 a barrel dragging down prices of metals and grains, on expectations damage from dysfunctional financial systems in developed economies would almost certainly cause them to shrink.

Europe's scattered response to the financial crisis enveloping the region also weighed on investors.

Divisions in how European leaders think best to approach the financial crisis were clearly on display.

Italian Prime Minister Silvio Berlusconi said on Sunday that Italy would revive the idea of a common bank bailout fund at a meeting of finance ministers on Monday, only a day after the leaders of Europe's four biggest economies - Germany, France, Britain and Italy - decided against a coordinated bank rescue.

The 10-year Japanese government bond future was up 0.9 point at 138.55, rising for a third day.

The yield on the 10-year US Treasury note which moves in the opposite direction of the price, fell to 3.54 per cent after earlier dropping to 3.52 per cent, down from 3.60 per cent late on Friday. -- REUTERS

KUALA LUMPUR
Malaysian share prices closed 1.95 per cent lower on Monday as major regional markets fell across Asia due to concerns over the global financial system, dealers said.

The Kuala Lumpur Composite Index dropped 19.86 points to close at 996.84 and turnover was 415.39 million shares valued at 929.63 million ringgit (S$389 million) while losers led gainers by 458 to 139.

'Volume is thin. All regional bourses are down. There is not much interest,' Kaladher Govindan, research head at local brokerage TA Securities told AFP.

'I see further downward correction,' he added.

Among heavyweights, plantation giant Sime Darby gained 0.76 per cent to 6.65 ringgit while utility firm Tenaga declined 2.22 per cent to 6.60 ringgit.

Top lender Maybank fell 0.76 percent to 6.55 ringgit while gaming company Genting shed 1.85 per cent to 5.30 ringgit.

SHANGHAI
CHINA'S stock market, resuming trade after a week-long national holiday, fell sharply on Monday in response to sliding share prices overseas and fears of a global economic slowdown.

The Shanghai Composite Index ended down 5.23 per cent at 2,173.738 points, just off the day's low of 2,172.569. During the week that the Chinese market was closed, the Dow Jones Industrial Average sank 7.34 per cent.

Falling Shanghai stocks outnumbered gainers by 781 to 143 on Monday, while turnover in Shanghai A shares was a moderate 47.2 billion yuan (S$10 billion).

Banks were particularly weak with the biggest bank, Industrial & Commercial Bank of China, down 6.44 per cent to 4.07 yuan.

Read in detail:
China stocks tumble 5.2 %

HONG KONG
Hong Kong share prices closed down 5.0 per cent on Monday, as markets tumbled across Asia and Europe on worries over the stability of the global financial system, dealers said.

The benchmark Hang Seng Index ended the session down 878.64 points at 16,803.76. Turnover was light at 47.33 billion Hong Kong dollars (S$8.87 billion).

TOKYO
Japanese share prices plunged 4.25 per cent to hit a four-year low Monday on fears that a massive Wall Street rescue plan may not be enough to quell the global financial crisis, dealers said.

They said Tokyo stocks were hit by a surge in the value of the yen, which threatens to reduce the value of Japanese companies' export earnings. The Tokyo Stock Exchange's benchmark Nikkei-225 index dropped 465.05 points to end at 10,473.09, the lowest closing level since February 12, 2004.

The sell-off intensified after the index dropped below the key support level of 10,500 points.

The broader Topix index of all first section shares slid 48.92 points, or 4.67 percent, to end at 999.05, slipping below 1,000 points for the first time since December 2003.

Dealers said the declines reflected worries that the plan would not resolve the broad economic and banking woes in the United States, which are also rapidly spreading to Europe.

'The market is not convinced that the US bailout package can protect the economy from the financial crisis,' said Toyo Securities strategist Ryuta Otsuka. 'In addition, the yen?s unexpected appreciation against the dollar is weighing on Japanese exporters.'

Japan's central bank injected another one trillion yen (S$13.8 billion dollars) into Tokyo?s short-term money market, the 14th straight business day that it has poured emergency funds into the financial system. -- AFP, AP, BERNAMA