Asian shares fall on jitters over US recession

Asian stock markets fell on Thursday after the US central bank predicted an even deeper recession in the world's largest economy.

AP
Last Updated: 8:18AM BST 21 May 2009

Benchmarks in Tokyo, Hong Kong and other major markets were lower by about 1pc. The dollar continued to slide against the yen, hurting Japanese exporters, while oil prices retreated from six-month highs.

Investors across the region were scaling back risky bets on stocks after the Federal Reserve cut its outlook for all of 2009, saying America's economy could shrink between 1.3pc and 2pc compared to the prior estimate of 0.5pc and 1.3pc. In an ominous sign for Asian exporters that rely on U.S. consumer demand, the Fed policymakers said the unemployment rate could approach 10pc.

With markets up 30pc or more over the last couple of months, investors are growing more cautious as they try to determine whether the rally was overdone or has more upside.

"A lot of the economic evidence is a bit better but still very bad," said Peter Lai, investment manager at DBS Vickers in Hong Kong. He said the Fed's unemployment projections were especially unsettling.

"I'm just not comfortable buying at these levels to be honest, and think a correction is imminent," he said.

Japan's Nikkei 225 stock average lost 78 points, or 0.8pc, to 9,266.45, and Hong Kong's Hang Seng shed 159.35 points, or 0.9pc, to 17,316.49.

Elsewhere, South Korea's Kospi dropped 1.4pc to 1,416.30. Shanghai's index fell 1.1pc , Australia's was off 0.5pc while Taiwan rose 0.2pc.

The Fed's outlook, contained in minutes of its recently policy meeting released Wednesday, reined in optimism on Wall Street, with banks taking the brunt of the selling.

The Dow Jones industrials fell 52.81, or 0.6pc, to 8,422.04. The blue chip guage had been up as much as 117 points in early trading. The Standard & Poor's 500 index slipped 4.66, or 0.5pc, to 903.47.

US futures pointed to more gloom on Wall Street on Thursday. Dow futures fell 31, or 0.4pc, to 8,364 and S&P futures dropped 3.8, or 0.4pc, to 896.10.

Oil prices eased off six-month highs in Asia, with benchmark crude for July delivery down 45 cents to $61.59 a barrel. On Wednesday, the July contract rose $1.94 to settle at $62.04 after the government said U.S. crude inventories fell for a second week, suggesting demand may be improving.

The dollar weakened to 94.51 from 94.58. The euro was lower at $1.3770. The pound strengthen further against the dollar to trade at $1.5768.