* IMF cuts 2008, 2009 global growth outlook
* Regulator warns Korea state bank against Lehman buy
* Ninth U.S. bank fails amid insolvency crisis
(Updates prices, adds European outlook)
By Kevin Plumberg
HONG KONG, Aug 26 (Reuters) - Asian stocks fell more than 1
percent and the cost of insuring against debt defaults rose on
Tuesday, after U.S. financial sector troubles, including a
ninth bank failure, underscored the global economy's
vulnerability.
European share markets were expected to open lower, with
Britain's FTSE 100 <> seen down as much as 1.4 percent,
according to financial bookmakers. Focus will be on a gauge of
German corporate sentiment in August, which analysts expect
will show the lowest reading in almost three years.
The International Monetary Fund trimmed its global growth
forecasts, primarily because of weakness in the euro zone
economy, bolstering the U.S. dollar and Japanese government
bond prices.
The toll from the credit crisis grew after Columbian Bank
and Trust turned insolvent late last week. Even Denmark's
central bank had to take over one of the country's financial
institutions, increasing unease in Asia about the potential
ripple effects.
South Korea's top regulator, meanwhile, warned state-run
Korea Development Bank against taking the lead in buying a
foreign company. The bank on Friday had said it was open to
purchasing an overseas financial institution, naming embattled
Lehman Brothers Holdings Inc <LEH.N> as one option.
"Concerns about credit risks both in the United States and
Japan are still strong. There are also worries about the global
economic outlook," said Yukio Takahashi, a market analyst at
Shinko Securities in Tokyo.
Japan's Nikkei stock index <> managed to cut some
losses to end down 0.8 percent, near a five-month low touched
on Friday.
Outside Japan, stocks in the Asia-Pacific region
<.MIAPJ0000PUS> were off 1.4 percent, within sight of a
17-month low hit on Thursday, according to an MSCI index.
Singapore's benchmark Straits Times index <.FTSTI> sank to a
two-year low, down 1.5 percent.
Shanghai's composite index <> fell 3.5 percent and
continued to be the worst performing equity market in the
world, down 53 percent on the year.
The saga with top U.S. mortgage finance companies Fannie
Mae <FNM.N> and Freddie Mac <FRE.N> also reverberated. On the
one hand, Freddie Mac easily sold $2 billion in debt on Monday,
reassuring the market that the companies can fund their
operations without a government bailout.
However, Fannie and Freddie preferred shares have been
beaten down. JPMorgan Chase & Co <JPM.N> said the market value
of its investments in the companies' preferred stock has been
halved this quarter to $600 million, showing how the financial
crisis is difficult to escape for even one of the least scathed
investment banks.
PREPARE FOR GROWTH BELOW TREND
Japanese government bond futures rose to a four-month high
on renewed worries about the health of the U.S. financial
sector. September 10-year futures <2JGBv1> rose 0.39 point to
138.49.
The market for credit default swaps, which act like
insurance against default and corporate restructuring,
reflected a dour outlook. The iTRAXX Asia ex-Japan high-yield
index <ITAHY5YIA=>, a key measure of investor risk aversion,
widened by 6-8 basis points to 560.
"The fixed income markets are signalling to central banks
the need to prepare for protracted sub-trend growth," said
Brett Williams, a credit analyst at BNP Paribas in Hong Kong in
an email to clients.
"Consecutive quarters of negative growth are already a
Japanese phenomenon, and are also being priced in for the UK
and euro zone. We see prolonged asymmetric downside price risks
to credit valuations," he said.
The U.S. dollar continued to benefit from investors seeing
a greater chance of lower interest rates outside the United
States, as the threat of recession haunts Britain and the euro
zone.
The IMF downgraded its global annual GDP growth forecast
for this year to 3.9 percent, down from 4.1 percent in its
World Economic Outlook last month, a G20 finance official told
Reuters on Monday. [] It projects 2009 growth of
3.7 percent, down from 3.9 percent.
The downward revisions are significant because they not
only bring the global economy closer to the IMF's definition of
a world recession -- growth of 3 percent or lower -- but also
suggest next year could be worse than this year.
The euro <EUR=> dropped 0.4 percent to $1.4687, about half
a cent above last week's six-month low. The dollar climbed 0.3
percent against the yen to 109.69 yen <JPY=>.
The British pound fell 0.3 percent to $1.8475 <GBP=>, after
hitting its lowest since July 2006 on Monday.
U.S. light crude was relatively unchanged at $115.14 a
barrel <CLc1>, and remains more than $30 below an all-time high
reached a month ago.
