(Recasts, updates prices, European outlook)
By Louise Heavens
SINGAPORE, Jan 21 (Reuters) - Stocks extended their drop on
Monday, with Tokyo shedding just under 4 percent after a
proposed U.S. stimulus package did little to soothe fears the
U.S. economy will tip into recession, prompting a flight to
less risky government bonds.
Worries about the world's top economy kept the dollar
within striking distance of a near three-year low against the
yen as investors unwound risky currency carry trades, while the
euro and sterling also fell.
European stock markets are expected to open lower, with
financial bookmakers in London forecasting Britain's FTSE 100
<>, Germany's Dax <> and France's Cac-40 <>
forecast to open 0.5-1 percent lower.
MSCI's All Country World Index <.MIWD00000PUS> fell 0.7
percent by 0629 GMT -- its lowest level since August.
The index has fallen 10 percent since the start of the year
as the credit crisis continues to draw out news of massive
write downs for banks and financial institutions around the
world and signs of a slowdown in retail sales.
Last week President George W. Bush called for package of
tax cuts and other measures of $140 billion to $150 billion to
shore up the U.S. economy, battered by the subprime mortgage
crisis and subsequent credit crunch. []
But the move did little to reassure stock markets and some
investors were expecting a global equity bear market.
"Over the last two years investors have been driven by
greed, we're now seeing investors being driven by risk and in
both directions, and that can make them irrational," said White
Funds Management portfolio manager Angus Gluskie.
Tokyo's benchmark Nikkei <> ended down 3.9 percent.
The index has shed a quarter of its value since July, when
concerns that the U.S. subprime mortgage crisis would permeate
global financial markets first reared their head.
Banks extended recent losses on fears they will reveal more
credit-related losses, with Mizuho Financial Group <8411.T>
down around 5 percent.
In Hong Kong, Bank of China <3988.HK> slid 4.7 percent
after a newspaper reported the lender is expected toannounce a
major write-down of its failed investments in U.S. subprime
mortgage securities in the fourth quarter.
In Seoul worries over the outlook for the United States --
a top export market -- hit stocks like flat screen maker
LG.Philips LCD Co Ltd <034220.KS>. The benchmark Korea
Composite Stock Price Index <> closed down 1.3 percent --
its biggest daily fall in 2 months.
Australia's S&P/ASX 200 index <> fell 2.9 percent to
its worst level since January 2007. The index has fallen for 11
straight sessions -- its longest losing run in more than a
quarter of a century.
MSCI's index of ASia Pacific shares outside of Japan
<.MIAPJ0000PUS> was down 3 percent.
DOLLAR DOLDRUMS
Japan's yen held gains against the dollar, supported by an
unwinding of risky positions as continuing losses in Japanese
stocks kepts investors alert to the possibility of a U.S.
recession and its potential effect on other economies.
"There's no change in the momentum to sell the dollar,"
said Hideki Amikura, a forex manager at Nomura Trust and
Banking. "More Nikkei losses are likely to push the dollar/yen
lower."
By 0631 GMT the dollar traded at 106.68 yen <JPY=>, little
changed from late last week, when it fell as low as 105.92 yen,
its lowest since May 2005.
Both the euro <EUR=> and sterling <GBP=> fell versus the
dollar on worries the European and British economies will slow
along with the United States.
Japan's March 10-year futures <2JGBv1> hit a two-year high
with a 0.33 point to 138.46. The five-year yield <JP5YTN=JBTC>
fell 3.5 basis points to 0.820 percent, the lowest since
January 2006. JGB investors are speculating that the Bank of
Japan's next policy move may be to cut interest rates if Japan
suffers from the troubles abroad.
Oil steadied below $91 a barrel, with prices supported by
the closure of Mexico's oil export terminals due to bad
weather, as well as OPEC's dismissal of calls to raise output.
U.S. light crude for February delivery <CLc1> was unchanged
at $90.58 a barrel in Asian trade.
Among metals, gold edged lower as Bush's tax cut plan
failed to inspire buying. Spot gold <XAU=> was trading below
$880 an ounce, down from $882 in New York on Friday.
(Editing by Lincoln Feast)
