Weakening yen continues to overshadow markets

Weakening yen continues to overshadow markets

SINGAPORE (Reuters): Japan's sliding currency made Asian markets suffer again on Tuesday as worries about the weak yen's impact on regional stability and competitiveness overshadowed trade.

The yen dipped below 141 to the dollar in early Asian business and, despite rebounding to 140.30 by late afternoon on fears of official intervention, traders worried about further falls and the lack of concrete action by Japanese policymakers to stop the rot.

Hong Kong stocks took shelter from a rainstorm in the morning session only to be drenched by yen-inspired gloom when the market opened, and South Korean stocks were also hard hit.

Seoul's main index lost nearly two percent and stocks in Hong Kong, struck by torrential rain which closed markets in the morning, lost even more ground. But Tokyo shares drew comfort from brighter export prospects to move smartly higher.

Regional currencies were mostly steady, but the Australian dollar remained weak despite growing talk of an interest rate hike.

The yen's fall remained the big issue throughout the region, whose recession-threatened economies are closely linked with Japan through trade and loans.

The dollar remained well bid above the 140-level throughout the day, with traders voicing skepticism over whether words would be backed by action.

And analysts warned that while Japan's economy remained weak and the U.S. economy continued to grow strongly, the yen was unlikely to get more than a short-term boost. "...the fundamentals are most decidedly not in place. Words themselves will not be enough," said Peter Morgan, an economist at HSBC Securities in Tokyo.

Hong Kong's tumble was led by China-linked stocks, sold off on fears that the yen's decline might push Beijing into devaluing its yuan currency.

The Hang Seng Index lost 195.17 points, or 2.27 percent, to 8,391.46 with brokers expecting further near-term falls. The red chip China-Affiliated Corporations Index slumped 8.52 percent to 934.92 points.

Tokyo stocks shrugged off gloom over the domestic economy to end over one percent higher as companies set to benefit from a more competitive yen led the way.

The main Nikkei index closed up 1.54 percent at 15,530.17. But shares of Long-Term Credit Bank of Japan Ltd (LTCB) tumbled amid lingering worries over its financial health, dragging down some other bank shares, traders said.

Fears that the yen's slide would erode the competitiveness of South Korean exports sent Seoul shares diving by more than three percent early on, before an afternoon rebound helped improve sentiment. South Korean firms compete head-to-head with Japan on world markets in goods such as electronics.

The composite stock index closed at 339.26 points, down 1.93 percent.

The Australian dollar languished below 60 U.S. cents, defying intervention by the central bank and feeding a frenzy of speculation that interest rates would be raised in its defense.

A rise in money market rates helped the currency poke its head above the 60-cent mark earlier, but it was soon beaten down to 12-year lows around 0.5965.

Most analysts were not expecting a hike, saying it would do more harm to the economy than good, but share prices suffered as rumors of a policy tightening spread. The All Ordinaries Index ended down 0.72 percent at 2,623.9.

"The uncertainty itself is enough to keep people away. The upside isn't big enough for investors to take too many chances at the moment," one senior dealer said.

Other regional currencies were little changed as traders waited to see where the dollar/yen rate would head next.

Other Southeast Asian markets were mixed. Malaysian shares jumped 1.58 percent, helped by a firmer ringgit and what traders said was a technical rebound, to close at 505.64 points.

Singapore's main Straits Times Index ended down 1.01 percent at 1,117.21.

Worries over Thailand's financial sector combined with yen- inspired nervousness to send Bangkok stocks down 1.32 percent to 308.25.

Mounting concern over the fading Taiwan dollar sent the main Taipei stock index down 135.64 points, 1.79 percent, to 7,455.63. The local dollar earlier slid to an 11-year low of 34.751 to the U.S. dollar.

The key Philippine share index ended off 6.10 points at 1,924.49.