Risk aversion returns to Asian markets as stocks sink and oil extends losses; STI down 1.6%

An employee holds a gas pump to refill a car at a petrol station in Seoul, in this April 6, 2011 file photo.
An employee holds a gas pump to refill a car at a petrol station in Seoul, in this April 6, 2011 file photo.PHOTO: REUTERS

WELLINGTON/SINGAPORE (BLOOMBERG) - Risk aversion returned to Asian markets as crude oil's slump deepened on Tuesday (April 5), with Japanese shares driving losses in Asia while the yen and Treasuries extended gains.

Energy producers sent the regional benchmark down for the second time in three days, as the yen's three-day surge weighed on Japanese exporters.

The MSCI Asia Pacific Index lost 0.8 per cent as of 10:03 am Tokyo time, set for its lowest close since March 10 as Japan's Topix gauge slumped 1.4 pe rcent to its lowest level in almost seven weeks.

Australia's S&P/ASX 200 Index dropped 0.7 per cent while the Kospi index in Seoul fell 0.7 perc ent as Malaysian shares also opened lower.

Singapore's Straits Times Index was down 1.55 per cent at 2,791.36 as of 9:41am.

The Federal Reserve's commitment to only gradually raising US interest rates has steadied financial markets, with global equities rallying from a 2 1/2-year low reached mid-February as central banks around the world work to restore confidence. At the same time, oil's rebound may have faltered, with anxiety over the potential disintegration of a Saudi Arabia-Russia led pact to freeze output driving crude's more than 7 per cent slide over the past three sessions. China's slowing economy also remains on the radar, with investors on the mainland and in Hong Kong to return from market holidays Tuesday.

"There is a bit of a risk-off theme at present with oil prices down and equities in negative territory in the US," Goh Khoon, a senior foreign-exchange strategist at Australia & New Zealand Banking Group in Singapore. "This has seen demand for euro and yen which tend to do well in a risk-off environment. Unsurprisingly with commodity prices down, both Aussie and kiwi are coming under some pressure."

Futures on the Standard & Poor's 500 Index were down 0.3 percent Tuesday, after the U.S. benchmark dropped 0.3 percent on Monday, led lower by mining and industrial shares.

"There's a big divergence in opinion right now over whether this rally is a head fake or not and that's the big question," Craig Sterling, head of U.S. equity research at Pioneer Investments in Boston, said by phone. "Stocks have gone up on not a lot of volume and we're kind of at an inflection point right now. It's going to be an interesting quarter because a lot of companies are not going to have a great quarter."

The Aussie was was down 0.1 per cent to 75.94 U.S. cents with all 26 economists surveyed by Bloomberg predicting the cash rate will be kept at 2 per cent on Tuesday. Currencies in Asian emerging markets retreated, with the Korean won weakening 0.8 per cent and oil's slump weighing on Malaysia's ringgit, which dropped 0.4 per cent.

The yen, which typically moves at odds with Japanese equities, added 0.4 per cent to 110.95 per US dollar after gaining 0.3 per cent last session.

"The yen has captured all the caution about the global economy that investors were building up earlier in the year," said Vassili Serebriakov, a foreign-exchange strategist at BNP Paribas SA in New York. "The BOJ hasn't been able to drive it weaker," he said, referring to the Bank of Japan.