* Japan's Nikkei plunges 11 pct, most since 1987 crash
* Oil drops to 13-month low near $72 a barrel
* Hedge fund Citadel says Sept its worst month ever
(Updates prices, adds European outlook)
By Kevin Plumberg
HONG KONG, Oct 16 (Reuters) - Asian stocks plummeted, led
by an 11 percent drop on Japan's Nikkei, and oil prices dropped
to a one-year low on Thursday as fears grew of a more
protracted and sharp global slowdown than initially expected.
Major European stock markets were expected to open down as
much as 5.9 percent, according to financial bookmakers, as
investors anticipated poor corporate results in such an
uncertain economic environment, while the dollar gained in a
flight from risk.
Optimism about the stabilisation in money markets has been
swept aside and widespread selling of global equities has
resumed in earnest as the quarterly results season gets
underway and reports trickle in about sharp losses at hedge
funds.
"I think today there is just a combination of uncertainty
and deleveraging in the market," said Amar Gill, head of
thematic research at CLSA in Singapore.
"International funds are pulling back and putting their
money into whatever is safest: Treasuries or cash or paying off
existing debt," he said.
Market ructions as investors flee from almost any form of
risk has weighed on the global economic outlook, which has fed
back into markets in a damaging circle.
The Nikkei share average plunged 11.4 percent <>, the
largest single-day decline since the 1987 stock market crash.
The president of Toyota Motor Corp <7203.T> on Wednesday
said the business environment has deteriorated beyond earlier
expectations and predicted the key North American car market
would remain sluggish through next year.
The MSCI index of Asia-Pacific shares outside of Japan
<.MIAPJ0000PUS> fell 7.8 percent, locked in a downtrend that
had brought it to a near 4-year low last week and erased more
than $1.5 trillion in market value. The index is down by half
so far this year.
Hong Kong's Hang Seng index <> fell 7.6 percent, with
the biggest losses racked up by commodity-related companies,
such as Shenhua <1088.HK>, China's top coal producer. South
Korean stocks <> had their third biggest fall ever, down
9.4 percent and the won <KRW=> dived 9.7 percent, its biggest
fall since 1997.
Some investors were trying to find value amid the selling.
Marino Valensise, chief investment officer of Baring Asset
Management, said he has been adding to exposure to equities and
is looking to add more.
In particular, Valensise said he likes prospects for
Chinese stocks because of the country's relatively solid growth
and the fact that many Chinese stocks were the first to enter a
sharp, sustained downturn, so they will be the first to emerge.
"We have adds equity exposure and we are looking to add
more," Valensise said at a news conference. "We like China and
we will act accordingly."
NOTHING NICE TO SAY
Overnight U.S. stock markets slid across the board, with
the S&P 500 index <.SPX> dropping 9 percent after a report
showed U.S. retail sales dropped the most in more than three
years.
"Bottom line, there is little positive to say about this
market. The equity markets are impacted by the lack of
liquidity in financial assets, terribly oversold conditions as
well as unknown visibility on the macro economy," said Thomas
Lee, chief U.S. equity strategist with JPMorgan, in a note.
Despite mixed messages from the Federal Reserve on the
near-term outlook for interest rates, the futures market
reflects a 50/50 chance the benchmark U.S. interest rate could
drop to 1 percent this month from 1.50 percent.
Even the most deft investors have been flipped by the
ferocity of selling and risk reduction in markets. Citadel
Investment Group, one of the world's largest hedge funds, said
September was the single worst month in the history of the
company and warned of more volatility in weeks to come.
[]
Hedge funds have had to liquidate their holdings to raise
cash to meet margin calls and redemptions. The resulting
selling has exacerbated price action in the market, money
managers said.
U.S. government debt prices were relatively steady, a
notable change compared with previous sharp selloffs in the
stock market that have led to solid demand for Treasuries.
Investors may need to raise cash by selling Treasuries,
keeping prices in check. In addition concerns about heavy new
issuance to fund bank rescue packages may also be weighing on
Treasuries, traders said.
The benchmark 10-year note dipped 2/32 in price to yield
3.959 percent <US10YT=RR>, up 1 basis point from late U.S.
trading on Wednesday.
The two-year note was steady in price to yield 1.568
percent <US2YT=RR>.
The U.S. dollar benefited from a rush out of risky assets,
especially emerging market currencies such as the won.
The euro fell 0.5 percent to $1.3389 <EUR=>, edging back
towards a 1-
