* Risk is abandoned and safety sought
* Fears about disappearing consumer demand hurt exporters
* Gold rises for fourth day, oil back above $125
(Updates prices, adds Hong Kong market)
By Kevin Plumberg
HONG KONG, July 29 (Reuters) - Asian stocks fell sharply on
Tuesday, after Merrill Lynch, the third-largest U.S. investment
bank, said it would take a $5.7 billion write down related to
bad debt, draining confidence in the unstable financial sector.
Coming a day after one of Australia's top banks said it
would write down more than $1 billion in credit-related losses,
the news increased fears that a year-old financial crises that
knocked global stock markets into bear market has further to
run. []
Worries that financial sector troubles will further
undermine the global economy kept the U.S. dollar trading below
Monday's one-month high against the yen. Gold prices rose for a
fourth day and Japanese government bonds climbed, pushing the
benchmark 10-year yield down to the lowest in three months.
"Equity markets are capitulating on expectations of a
deepening of the global banking crisis. Asian and emerging
markets are experiencing capitulation due to risk aversion,"
Sean Darby, chief Asia strategist with Nomura in Hong Kong,
said in a note to clients.
Japan's Nikkei share average <> fell 2 percent,
weighed by shares of high-profile exporters, such as Honda
Motor Co <7267.T> and Canon Inc <7751.T>, as investors continue
to punish companies dependent on overseas demand.
Shares in the rest of the Asia-Pacific region also dropped
2 percent, according to an MSCI index <.MIAPJ0000PUS>. The
index last week briefly broke above a downward trend that
stretched back to May 19, but has since fallen for three
consecutive days.
Hong Kong's Hang Seng <> declined 2.4 percent, while
Taiwan's TAIEX index <> was down 3.4 percent.
South Korea's KOSPI <> dropped 2.9 percent, led by
Samsung Electronics Co Ltd <005930.KS> and LG Electronics Inc
<066570.KS>, consumer-oriented companies which last week issued
grim views of the global economy.
Australia's benchmark S&P/ASX 200 <> slid 1.6 percent,
with shares in Commonwealth Bank of Australia <CBA.AX>,
Macquarie Group Ltd <MGQ.AX> and National Australia Bank
<NAB.AX> all down more than 4 percent.
Merrill Lynch said it will take a $5.7 billion
third-quarter write-down as it unloads huge amounts of risky
debt, and will raise $8.5 billion by selling new stock, a move
that could dilute the value of existing shares.
The Wall Street investment bank and brokerage announced its
plans less than two weeks after posting a $4.9 billion
second-quarter loss, hurt by more than $9 billion of
write-downs.
NERVOUSNESS AND SECOND GUESSING
"Worries about what's coming out of the woodwork next is
going to see market investors take a bit of time to feel more
comfortable about the financial sector," said Tony Russell,
senior equities adviser at ABN AMRO Morgans in Australia.
"There will be a lot of nervousness and second guessing."
The benchmark 10-year Japanese government bond yield fell 4
basis points to 1.525 percent <JP10YTN=JBTC>, the lowest since
late April, after safe-haven U.S. Treasury prices rose on
Monday.
Corporate credit investors in Asia also began to price in a
slightly higher chance of default as equity markets weaken and
.
The Asia ex-Japan iTRAXX high-yield index <ITAHY5UA=GFI>, a
key measure of risk aversion, widened by 10 basis points to
535, while the equivalent investment-grade index <ITAIG5UA=GFI>
widened by 2 bps to 138, according to BNP Paribas.
Asian credit spreads remain well below the record highs hit
in March in the run-up to the meltdown of U.S. investment bank
Bear Stearns, but are still at more than double the levels at
the beginning of the year.
Gold, still considered by many analysts and investors as a
safer alternative in times of heightened market volatility and
inflation, rose 0.2 percent to $931.45 an ounce <XAU=>. Lately,
gold has followed the movements of oil prices closely.
Oil prices rose slightly above $125 a barrel <CLc1>, after
militant attacks cut Nigerian output and uncertainty deepened
about Iran's nuclear ambitions.
The U.S. dollar was down 0.1 percent against the yen at
107.40 <JPY=> after climbing to a one-month high on Monday,
above 108 yen. The euro was steady at $1.5744 <EUR=>.
For many investors, focus will be on a busy calendar of
U.S. economic indicators due this week, including the July
employment report. In addition, companies in the region
announcing their results include Mizuho Financial Group
<8411.T> and TSMC <2330.TW>, the world's biggest contract chip
maker.
(Additional reporting by Geraldine Chua in SYDNEY and Rafael
Nam in HONG KONG; Editing by Louise Heavens)
