* Stocks hit 8-mth low on German move to tighten
regulations
* Euro down, just above four-year lows as jitters remain
* Foreign share selling in Asia highest since Oct. 2008
* S.Korea won slides, funds dump long positions
* Defensive sectors utilities, telecom outperform
By Umesh Desai
HONG KONG, May 20 (Reuters) - Worries over the euro zone's
debt crisis hammered Asian stocks to their lowest in more than
eight months and sent the euro down, struggling to stay above
the previous day's four-year low as political divisions and
fears of more market regulation kept investors on edge.
Japan's Nikkei average <> closed at a new three-month
low and the South Korean benchmark KOSPI <> fell to a near
three month closing low, as investors worried about the
troubles of Europe resulting in slowing growth there.
European markets rebounded from the previous day's slump,
with the FTST Eurofirst 300 <> up 0.3 percent, Germany's
DAX <> up 0.6 percent and France's CAC <> half a
percent higher.
The euro, reversed its earlier fragile rally, heading back
to near four-year lows struck the previous day after Germany's
surprise ban of naked short-selling in some securities spooked
financial markets.
The euro fell 0.5 percent from late U.S. trade to $1.2348,
having risen as far as $1.2433 on trading platform EBS in early
deals, as traders covered short positions on speculation
European monetary officials might move to check its rapid fall.
Germany's move to stamp out speculators added further
worries to a market already jittery about Greece's heavy debts.
Investors are fearing that austerity policies, needed to pull
fiscally weak EU countries into line, will dampen European and
world growth. []
Berlin's unilateral step suggested Europe remained unable
to form a united front in addressing its debt crisis. It
worried investors by increasing uncertainty over market
regulation.
Traders said Thursday's market slide appeared to be driven
by sell signals from value-at-risk models, which are widely
used by trading desks and funds to determine the level of risky
positions they are willing to stomach.
The sharp drop in the Australian dollar against the yen and
even the euro, and the euro's jump against the won, suggested
that market players were being forced to cut positions across
the board, even those bets against the single currency.
Many traders cited a lack of liquidity across markets as
exacerbating the moves. They also noted heavy hedge fund
selling across markets, including the Aussie and won.
The won, which logged its biggest weekly loss in more than
14 months, suffered in the broad sell-down of risky assets from
value at risk models.
The yen <JPY=>, which usually gains during heightened
uncertainty and risk aversion, rose against the high-yielding
Australian dollar <AUD=> which slid 3 percent on the day
pushing the unit down to a 10-month low.
Foreign selling was seen in many equity markets in the
region and these sales are already hitting multi-month peaks.
Credit Suisse said in a report their foreign investors'
selling in May for emerging Asia outside China and Malaysia is
already the highest monthly aggregate since October 2008.
It said that if the pace of selling sustains for the rest
of the month there could be net sales of $14 billion, compared
with the high of $17.5 billion in August 2007, during the bear
market.
"We have seen a large amount of money come in and we are
beginning to see some of that trickle out," said Bratin Sanyal,
head of Asian equities at ING Asset Management in Hong Kong who
manages $2.4 billion.
"With global turmoil and growing risk aversion we are
seeing some money being pulled out and flowing back into their
home markets."
Asian stock markets continued to bleed for the second
straight day and are heading towards its worst weekly
performance since November 2008.
The MSCI index of Asia-Pacific shares outside of Japan
<.MIAPJ0000PUS> fell 2.3 percent to a eight month low. It has
now fallen 8.5 percent this week and 11.3 percent this year.
Industrials <.MIAPJIN00PUS> and materials <.MIAPJMT00PUS>
shares were the biggest losers.
The MSCI sector indexes for defensive sectors like
healthcare <.MIAPJHC00PUS> and utlities <.MIAPJUT00PUS> posted
modest losses, outperforming the broad market.
INSTABILITY TO STAY
Wall Street slipped on nervousness about the disarray in
Europe and on worries the crisis would hurt growth. That came
on the heels of losses in Europe for the third in four
sessions.
"Investors are entitled to be a little hesitant about
putting a toe into the shark-filled waters," said Richard
Morrow, director at E.L. & C. Baillieu Stockbroking. "Only one
thing is certain: this volatility is likely to stay around at
least in the short term. This is a trader's market."
Australian shares gave up initial gains as Wall Street's
drop weighed and worries remained that Europe's problems could
hurt economic growth. The benchmark S&P/ASX 200 <> was
down 1 percent, wallowing at a 9-month low.
South Korean assets were dealt an extra blow by rising
tensions in the Korean peninsula as Seoul exchanged tough
rhetoric with its northern neighbour over the cause of a navy
ship sinking that killed 46 sailors from the south.
Souring risk appetite also drove demand for safe haven U.S.
Treasuries with the yield on the benchmark 10-year note
<US10YT=RR> easing to 3.35 percent after rising 2 bps the
previous day on euro jitters.
ING's Sanyal said that aversion was a good omen for
defensive sectors.
"Some of the unloved sectors should do well. Telcos and
utilities have performed poorly and are underowned. With the
fear factor coming back into the market they should do well,"
he said.
(Additional reporting by Sonali Paul in MELBOURNE; Editing by
Jan Dahinten)
