* Stability of U.S. banks again called into question
* Asia shares fall 3 percent, bond yields sink as fear
rises
* Euro will see limited upside before next ECB meeting
By Kevin Plumberg
HONG KONG, April 21 (Reuters) - Asian stocks fell and
government bonds rose on Tuesday, after a 41 percent quarterly
increase in bad loans at Bank of America renewed fears of
deteriorating credit, halting a rebound in risk taking.
The financial sector was under fire after the largest U.S.
bank greatly increased its reserves for non-performing assets,
raising uncertainties about future writedowns at a time when
investors are already worried about the results of stress tests
on the banking industry. []
"One day of a major correction does not break a trend,
especially the ferocious rally of the past six weeks," said
Dariusz Kowalczyk, chief investment strategist with SJS Markets
in Hong Kong, in a note.
"But we do expect a more substantial return to the risk
aversion trade some time in the near term, most likely in
relation to the U.S. bank stress test results expected on May
4."
Japan's Nikkei share average <> tumbled 3.1 percent,
weighed down the most by a mix of exporters and industrials.
Shares of Toyota Motor Co <7203.T> dropped 4.4 percent on a
report the automaker will likely produce 12 percent fewer
vehicles this financial year because of a sales slump.
[]
The MSCI index of Asia Pacific stocks outside Japan
<.MIAPJ0000PUS> fell 2.8 percent, after hitting a six-month
high last Thursday. The index is still up some 25 percent in
the last month, in what many strategists regard as a bear
market rally.
Government bonds, which have been weighed by fears about
large upcoming supply to finance government stimulus spending,
actually got a lift as investors bailed from equities.
The yield on the benchmark 10-year U.S. Treasury note
<US10YT=RR> slid to 2.83 percent from 2.85 percent late in New
York, with new supply light this week.
The June 10-year Japanese government bond future <2JGBv1>
rose 0.3 point, still working its way back after hitting a
5-1/2-month low on April 9.
Firm demand was expected for a 900 billion yen auction of
20-year bonds later in the day, which is expected to have a 2.1
percent coupon, higher than the last 20-year auction.
The euro was near a one-month low against the yen and U.S.
dollar, with support for the single currency limited ahead of
the next European Central Bank meeting on May 7.
Currency investors were focussed on what kind of
unconventional policy actions the central bank could take to
ease credit conditions and whether internal politics will
prevent an aggressive stance.
The euro was nearly unchanged at $1.2919, not far from
Monday's low of $1.2883 <EUR=>. Against the yen, the euro was
at 126.68 yen <EURJPY=> after earlier touching a one-month low
near 126 yen.
The retreat from global equities kept pressure on U.S.
crude oil prices, with the front month edging down 0.5 percent
to $45.65 a barrel <CLc1> after a near 9 percent drop on
Monday.
(Editing by David Fox)
