Asian Stocks Sink After Europe Credit Downgrades

By Salon Staff

Published January 16, 2012 5:27AM (EST)

BANGKOK (AP) — Asian stocks sank Monday after a ratings downgrade rattled Europe and crucial talks aimed at nudging Greece toward solvency were mired in disagreement.

Benchmark oil prices were slightly higher near $99 per barrel and the dollar rose against the euro but fell against the yen.

Japan's Nikkei 225 index slid 1.5 percent to 8,372.67 and Hong Kong's Hang Seng lost 1 percent at 19,021.85. South Korea's Kospi index dropped 1.1 percent to 1,855.95.

Benchmarks in Singapore, Taiwan, India, Indonesia and mainland China also fell.

Standard & Poor's decision Friday to strip France of its top-notch credit rating and to downgrade eight other nations that use the euro battered investment sentiment, raising fears that a solution to the continent's sovereign debt crisis may be far off.

Negotiations between the Greek government and its private creditors on a bond swap nearly collapsed Friday. The deal would reduce Greece's debt by euro100 billion ($127.8 billion) by swapping private creditors' bonds with new ones of a lower value.

Without the swap, debt-crippled Greece is unlikely to secure a second financial bailout — which could hurtle the country into bankruptcy and send economic shock waves around the world. Greece's first bailout came in 2010.

"There is growing risk of a disorderly default by Greece, with talks reportedly breaking down after private sector creditors could not agree on the coupon level of fresh bonds," said Stan Shamu of IG Markets in Melbourne, Australia.

"With a euro14.4 billion bond repayment due in March, and without restructuring in place, the entire sum would fall, making it increasingly likely that Greece will default," Shamu wrote in a email.

Improving monthly machine orders in Japan did little to stem worries. Core private sector machinery orders, excluding shipbuilding and electricity, rose 14.8 percent in November. That was the fastest growth since January 2008, the government said.

Some analysts said they believed that dealers had largely factored in the risk of a Greek default in their trades and were more concerned about what simmering tensions in the Middle East and Nigeria might do to oil prices.

The U.S. is trying to rally global support for sanctions against Iran for its alleged efforts to develop nuclear weapons. Iran, the world's fourth-largest oil exporter, has vowed to retaliate by shutting down the Strait of Hormuz, the passage for one-sixth of the world's oil.

That could send prices skyrocketing and feed inflation in the U.S. and potentially hinder its fragile recovery from the Great Recession.

Meanwhile, a threatened strike by oil workers in Nigeria, a top oil supplier to the U.S., has further complicated the picture. The threat is in response to the government's decision to end fuel subsidies, which more than doubled the price of gasoline in a country where most people live on less than $2 a day.

"Inflation is just around the corner," said Tom Kaan of Louis Capital Markets in Hong Kong. "That to me is a bigger concern than Europe. Europe isn't going to be resolved in a year's time or three year's time. I think Greece will go into default and then you will have a two-tiered Europe."

Financial-related shares headed lower amid worries that the eurozone debt crisis could put pressure on bank lending. Mitsubishi UFJ Financial Group Inc. fell 2.4 percent and Hong Kong-listed Agricultural Bank of China lost 1.4 percent.

In Australia, Platinum Asset Management fell 2.6 percent after the fund last week forecast a drop in profit. But Leighton Holdings jumped 4.4 percent after the construction giant upgraded its underlying profit forecast.

Japanese exporters continued to suffer on the back of a strong yen, which reduces the value of profits earned overseas. Sharp Corp. dropped 3.2 percent, and Sony Corp. fell 2.3 percent. Mazda Motors Corp. was down 3.1 percent.

In energy trading, benchmark oil rose 17 cents to $98.87 per barrel in electronic trading on the New York Mercantile Exchange. The contract fell 40 cents to close at $98.70 per barrel in New York on Friday.

The euro fell to $1.2643 from $1.2670 late Friday in New York. The dollar fell to 76.83 yen from 76.96 yen.

Salon Staff

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