(Adds European trading update and more quotes)
By Mike Dolan
LONDON, Feb 6 (Reuters) - Stock market losses deepened in
Asia on Wednesday as investors fretted about a global economic
slowdown as stressed banks everywhere rein in lending.
Although the slide appeared to stabilise as European bourses
opened, traders and analysts said there were few glimmers on the
horizon.
Renewed anxiety about the world economy was triggered on
Tuesday by surveys showing dominant service sectors in the
United States, Germany, Italy and Spain all contracted in
January.
Heavy losses of more than three percent in Europe and Wall
St on Tuesday were matched in Asia earlier and MSCI's measure of
Asian stocks excluding Japan <.MIAPJ0000PUS> was down 3.0
percent ahead of Chinese New Year holidays across the region.
Japan's Nikkei <> and Hong Kong's Hang Seng index
<> lost about 5 percent each.
The domino effect appeared to break in Europe as losses were
more contained but the FTSEurofirst 300 index <> was down
0.3 percent by 0930 GMT.
The pessimism was partly punctured by upbeat annual earnings
from France Telecom <FTE.PA> and further acquisition talk in the
mining sector. Shares in Anglo-Swiss miner Xstrata <XTA.L>
jumped more than three percent on speculation of a bid from
Brazilian mining giant Vale <VALE5.SA>.
MSCI's world equity index <.MIWD00000PUS> was down 0.9
percent by 0930 GMT.
But the wider concern about global economic demand was
reflected in fresh losses in crude oil prices, with U.S. light
crude futures <CLc1> losing another $1 to below $88 per barrel.
"The U.S. economy just attracts more bad news and
demonstrates its fragility," said Robert Laughlin of MF Global.
Concerns about the relentless stream of weak economic news
was echoed across equity and bond markets.
"At the moment we have an asymmetric market, a market that
is chasing bad news," said Alain Bokobza, chief strategist at
Societe Generale in Paris.
S&P futures <SPc1> were a fraction higher on Wednesday,
indicating a steadier start on Wall Street later.
BANK PAIN
Nerves about full-year results from European banks continued
to jangle, meantime, with Germany's Deutsche Bank <DBKGm.DE> and
Spain's Banco Santander <SAN.MC> due to report on Thursday.
On Wednesday, German state North Rhine-Westphalia said state
bank WestLB was negotiating risk protection of 3 billion euros.
Reflecting banking difficulties, euro and dollar interbank
lending markets remain tight and banks' short-term funding costs
have started to edge higher again this week. []
Few expect the European Central Bank to lower interest rates
at its policy meeting on Thursday, but growing evidence Europe
too is feeling the effects of the U.S. subprime crisis is
stoking speculation of an ECB cut as soon as the second quarter.
The euro <EUR=>, which lost one percent to the dollar on
Tuesday, slipped further on Wednesday.
"People are unsure how the ECB is going to react," said
David Pais, currency strategist at Citi. "Wage inflation is
growing but real economy and survey data in the euro zone is
soft, so it remains to be seen how soon they act."
PRE-HOLIDAY ASIA ANGST
Financial shares such as Mitsubishi UFJ Financial Group
<8306.T> were among the biggest decliners in Asia after Standard
& Poor's on Tuesday warned the ratings of U.S. banks could be at
risk should bond insurers be downgraded. []
But trade was thinner than usual with markets in South
Korea, Taiwan, and China closed on Wednesday for the rest of the
week in what has been a less than festive start to the Lunar New
Year holidays.
"The market is being hit by U.S. recession fears," said
Yoshihiro Ito at Okasan Capital Management in Tokyo. "The impact
of subprime (mortgage) problems is spreading into the broader
U.S. economy."
Exporters such as Canon Inc <7751.T> skidded amid concerns
about declining overseas sales, as did regional financial firms
such as Australia's Allco Finance <AFG.AX>.
Australian stocks <> also fell, hurt by a 7.5 percent
decline in BHP Billiton <BHP.AX> after the world's biggest miner
launched a hostile $147.4 billion bid for rival Rio Tinto
<RIO.AX>. [].
Gold bounced after falling to its lowest level in almost two
weeks on Tuesday, with spot prices<XAU=> at $893.15/85 an ounce.
(Additional reporting by Rafael Nam, Simon Falush, Sitaraman
Shankar, Randi Fabi. editing by Mike Peacock)
