* Fate of U.S. car makers darkens, hitting sentiment
* U.S. dollar hits 13-year low against yen
* 10-yr US Treasury drops to five-decade low below 2.5 pct
* Asia automakers plummet, Toyota down 10 pct, Honda 12.5
pct
* Commodity prices tumble on demand fears
(Updates prices, adds European outlook)
By Kevin Plumberg
HONG KONG, Dec 12 (Reuters) - Asian stocks slumpped more
than 5 percent on Friday after the collapse of a $14 billion
rescue plan for ailing U.S. automakers threatened to further
damage the world's biggest economy, sending investors
scrambling to the safety of government bonds and the yen, which
hit a 13-year high.
Major European stock markets were expected to fall as much
as 5.3 percent in early trade, according to UK financial
bookmakers, as the unraveling rescue plan worsened investor
sentiment around the world. []
The suddenness of the move in the dollar/yen, which pushed
the U.S. dollar below the sensitive level of 90 yen, fed
concern that Japanese officials would enter the market to
stabilise their currency.
Investors bailed out of stocks and piled into U.S.
Treasuries, knocking the benchmark 10-year yield to the lowest
in more than five decades, as bargain-hunting that had helped
to drive up shares in the last week dried up in the face of a
worsening global economic outlook.
U.S. stock futures pointed to a much lower open on Wall
Street, with S&P 500 futures down 5 percent <SPc2>, after the
U.S. Senate failed to reach a last-ditch compromise to bail out
automakers, effectively killing any chance of congressional
action this year.
Because of their shared suppliers and vendors, some
economists fear the failure of one Detroit manufacturer could
drag down the other two as well as many other businesses,
throwing more people out of work, putting more pressure on the
banking system and likely deepening the U.S. recession.
The collapsed bailout led to weakness across commodities,
everything from copper to crude and rubber, as investors
speculated on the impact to the global supply chain that fuel
the so-called Big Three car manufacturers -- Ford Motor Co
<F.N>, General Motors Corp <GM.N> and Chrysler LLC [].
"What the failure of this deal does is that it will set
back sentiment not only in the U.S., but also set back
sentiment globally. There is going to be further risk aversion
going forward," said Joseph Tan, chief Asian economist with
Credit Suisse in Singapore.
The MSCI index of Asia-Pacific stocks outside Japan
<.MIAPJ0000PUS> fell 5.1 percent, essentially cutting this
week's gains in half. The index is down 56 percent on the year,
easily the steepest decline since the gauge started in 1988.
Japan's Nikkei share average <> sank 5.6 percent,
snapping four days of gains.
Shares of Toyota Motor Corp <7203.T> were off 10 percent
and Honda Motor Co <7267.T> off 12.5 percent on worries about
massive disruptions in the U.S. economy if one or more of its
automakers collapse. []
Hong Kong's Hang Seng index <> was down about 7
percent, weighed by shares of commodity-related companies.
Shares of PetroChina <0857.HK><601857.SS>, Asia's top oil and
gas producer, tumbled 10 percent as crude prices dropped.
RISK, ONCE AGAIN, IS SOLD
Even before the automaker deal fell apart in the U.S.
Senate, Asian shares had already been under pressure because of
unease about the shrinking financial sector and economic
malaise.
Bank of America Corp <BAC.N> said it plans to cut up to
35,000 jobs over the next three years, while JPMorgan's chief
executive described the bank's performance in the last few
months as "terrible."
"It shouldn't come as a surprise that Asian equity markets
are selling off today on news of the U.S. auto bailout
failure," said Tim Rocks, equity strategist with Macquarie
Securities in Hong Kong.
"For Asia, the major issue is how much damage is being done
to earnings and balance sheets, and we won't know until
February when companies announce fourth-quarter earnings," he
said.
The rapid shift out of risky assets on Friday propelled the
yen higher. The U.S. dollar fell as low as 88.40 yen <JPY=>,
the lowest since 1995, before recovering to around 89.75 yen.
The yen's spike prompted Japan's top financial diplomat,
Naoyuki Shinohara, to say the currency movements were too
volatile and the moves in the foreign exchange market were
being watched with concern. However, Shoichi Nakagawa, the
country's finance minister, said it was not considering
intervening, according to Bloomberg. []
The last time the Bank of Japan intervened in the market,
on behalf of the Ministry of Finance, to cap the yen was in
2004.
"Without an intervention, the dollar could hit 85 yen, so
Japan will likely intervene to prevent that from happening,"
said Masafumi Yamamoto, head of foreign exchange strategy with
Royal Bank of Scotland in Tokyo.
"The worst case scenario for Japanese authorities is that
the yen's appreciation pushes down Japanese share prices which
will further aggravate of the economy, and they see it
happening now."
In the bond market, the yield on the benchmark 10-year note
<US10YT=RR>, which moves in the opposite direction of the
price, slipped to 2.48 percent, the lowest in more than 50
years.
Maturities of less than a year traded at barely any yield
at all, with the 3-month bill yield <US3MT=RR> flitting between
1.5 basis points and zero. Year-end is usually a time when
global investors and corporates pile into the highly liquid
short-term U.S. debt market to keep cash safe and dress up
balance sheets.
However, the ferocity of the global economic slowdown this
year has made 2009's prospects particularly grim.
U.S. light crude for January 2009 delivery <CLc1> tumbled
$2.08 to $45.90 a barrel, creeping back down toward a four-year
low of $40.50 hit earlier in the month.
Remarks from OPEC President Chakib Khelil overnight about
the need for a big cut in production increased speculation
among traders that supply will be cut by 1-2 million barrels
per day.
