TOKYO/BEIJING - JAPAN'S exports to Asia fell in October for the first time since 2002, signalling that the fallout from the credit crisis has spread to neighbours such as China and adding momentum to investors' flight to the safety of cash.

Asian markets suffered the same battering that drove US and European stocks to their lowest levels in 5 years overnight. Japan's Nikkei tumbled 5 per cent, while the MSCI All-Country World Index hit its lowest level since May 2003, dragged down by Asian shares.

The drop in Japanese exports contributed to mounting signs elsewhere that the global slowdown could get worse.

The Federal Reserve forecast that the US economy would contract through the first half of next year, while US consumer prices last month posted their biggest drop on record.

'The fall in exports to Asia reflects that their economies are also taking a blow from weakness in developed economies,' said Mr Takeshi Minami, chief economist at Norinchukin Research Institute in Tokyo.

The worrisome outlook sent regional bonds surging on Thursday. The yield on Japanese 10-year government bond futures fell to as low as 1.430 per cent , the lowest since early October.

Corporate news offered little room for optimism, either.

Citigroup shares tumbled 23 per cent on Wednesday to a 13-year low, as investors questioned the survival prospects of the US banking giant on concerns about mounting losses from credit cards, mortgages and toxic debt.

Prospects for a US$25 billion (S$38 billion) bailout of the US auto industry faded further, with little expectation that Democratic leaders in Congress will support a compromise that hinges on negotiations supported by Republicans and the 'lame-duck' White House.

'I won't say it's completely over. I'm still having conversations with people. But it doesn't look good,' Senator Robert Bennett, a Utah Republican, said of chances lawmakers would strike a deal on aid for General Motors, Ford Motor and Chrysler that could pass.

Asian currencies under pressure
Some countries are looking almost as vulnerable as troubled companies.

The International Monetary Fund on Wednesday approved a US$2.1 billion loan for Iceland to try to stabilise what the fund called a 'banking crisis of extraordinary proportions'.

The fund said Iceland's economy was likely to shrink 9.6 per cent next year, with unemployment quadrupling to 5.7 per cent.

An intense aversion to risk weighed heavily on some Asian currencies on Thursday.

Fears that South Korea's export-dependent economy would be hit hard by the deepening crisis drove the won down 3.5 per cent to an almost 11-year low against the dollar before suspected central bank buying pared the currency's losses.

The Indonesian rupiah also fell to its weakest levels in a decade, with trading volumes virtually drying up as market participants braced for a steep fall in the currency.

'Not a single interbank deal went through yesterday for four to six hours,' said one trader in Hong Kong. -- REUTERS