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.