(Corrects second paragraph to show the dollar hit a one-year
high on Monday)
* Jubilation over Fannie, Freddie bailout fades quickly
* Safety first: Bank shares fall, yen gains
* Oil below $106 with U.S. dollar strong vs euro
(Updates prices, adds European outlook, comments on banks)
By Kevin Plumberg
HONG KONG, Sept 9 (Reuters) - Asian stocks retreated and
government bonds rose on Tuesday in a sobering realisation the
U.S. takeover of Fannie Mae and Freddie Mac addressed some risks
stemming from the financial crisis but has not solved it.
Increased uncertainty about the global economic outlook
favoured the dollar, which hit a one-year peak against a basket
of currencies on Monday, and other currencies associated with
safety and stability, such as the yen and Swiss franc.
Such concerns were likely to spread to European share
markets, which were seen opening slightly higher in Britain but
lower in Germany and France. Britain's FTSE 100 <> index
was predicted to open as much as 4 points higher, the German DAX
<> down 2 to 16 points, and the French CAC 40 <> down
3 to 10 points, according to financial bookmakers.
Large bank shares fell after a broad global financial sector
rally on Monday, though they slightly outperformed the broad
market.
In a 24 hour span, market sentiment went from relief that
the top U.S. mortgage finance companies would not be allowed to
fail and spark a broad meltdown, to caution that problems at
other financial institutions have yet to be resolved and could
still have a knock-on effect on the region.
"It was a knee-jerk reaction yesterday, but the long-term
outcome is that you are not going to expect the U.S. economy to
improve if the housing market does not fix itself," said Lucinda
Chan, a division director with Macquarie Equities Ltd in Sydney.
Japan's Nikkei share average <> fell 1.8 percent, led
by shares of companies associated with the technology sector or
consumer demand, such as Kyocera Corp <6971.T> and Honda Motor
Co <7267.T>.
Outside of Japan, Asia-Pacific stocks dropped 2.5 percent
<.MIAPJ0000PUS> after posting their biggest daily gain of 2008
on Monday, according to an MSCI index. Financial sector stocks
in the region fell 2.1 percent, while the materials sector
dropped 4.5 percent.
Hong Kong's Hang Seng index <> fell 2 percent and is off
26.7 percent so far this year.
Goldman Sachs downgraded its view to neutral from attractive
on Chinese banks, whose shares have been one of the bright spots
in an otherwise dismal market. Among the reasons, analysts at
the bank cited the risk of rising bad loans at property
developers and a slowing economy.
BANKS IN THE CROSS HAIRS
High-profile financial sector analysts were out in full
force on Tuesday, cutting their profit estimates for an array of
banks.
Richard Bove, an analyst with Ladenburg Thalmann, increased
his fiscal year 2008 loss per share view for Lehman Brothers
<LEH.N> by 17 percent, citing a volatile month in the securities
industry. He also said the third quarter business of Goldman
Sachs, the largest U.S. investment bank, was "lousy."
[]
Washington's bailout of the top U.S. mortgage finance
companies on Sunday, which could be the most expensive ever, won
acclaim from policymakers around the world, eager for positive
news after more than a year of fallout from the credit crisis.
The move to place the companies under conservatorship,
similar to bankruptcy, also had an immediate effect on U.S.
mortgage rates, which fell half a percentage point.
However, whether housing prices will stop falling is another
issue altogether.
"The bottom line is that buyers are still not interested in
buying depreciating assets and in any case have less money to do
so whilst lending conditions remain tight and the inventory
overhang is still huge," Calyon analysts said of the U.S.
housing market in a note sent to clients.
"For now, the taxpayer is becoming increasingly embroiled in
the housing market crisis and things will get worse before there
is any sign of a turnaround."
The U.S. dollar rose against the euro but fell against the
yen as more cautious trades pushed out the rush of risk taking
on Monday.
The dollar fell 0.5 percent against the yen to 107.60 yen
<JPY=>, though it remains well above a two-month low around
105.50 yen hit on Friday.
"The market has gone back to credit worries and concerns
about a global economic slowdown, and the yen is being bought
across the board," said Hideaki Inoue, chief manager of forex
trading at Mitsubishi UFJ Bank.
The euro edged down 0.2 percent to $1.4090 <EUR=>, creeping
back down toward an 11-month low around $1.4050 hit on Monday.
Oil prices slipped as the firmer dollar outweighed the
threat to U.S. production of another storm. Hurricane Ike was
heading toward rigs in the Gulf of Mexico, an energy-rich area
still recovering from Hurricane Gustav, though it had lost some
strength.
The October U.S. light crude future was down 96 cents to
$105.37 a barrel <CLc1>, having plunged more than $40 from an
all-time high reached in July.
The benchmark 10-year Japanese government bond yield fell 3
basis points to 1.495 percent <JP10YTN=JBTC>, pulling away from
a one-month high of 1.550 percent hit on Monday.
(Additional reporting by Denny Thomas in SYDNEY; Editing by
Lincoln Feast)
