Weak Japanese exports and poor corporate earnings provided more evidence of the economic damage wrought by the global financial crisis, knocking Asian shares to four-year lows on Thursday.
New Zealand's central bank became the latest to try to temper the impact of the credit crisis, slashing interest rates by a record one percentage point and saying further rate cuts are in the pipeline.
Japan's Nikkei share average was down over 2 percent after earlier hitting a more than five-year low. The MSCI index of Asia-Pacific stocks outside Japan fell 5.4 percent to its lowest in four years.
The carnage in Asian markets followed the fall of U.S. stocks to a five-year low, as weak corporate earnings reports and announcements of job cuts prompted fears of a global recession.
Markets in developing countries, especially those that depend on portfolio flows to balance their current accounts, were abandoned overnight, with almost no one spared from a sharp slowdown in the global economy that has pushed crude prices below $70 a barrel and dragged copper prices to a three-year low.
In Asia, the cost of protection against a default in debt soared to record highs on Thursday, reflecting deepening worries that a global downturn would hit emerging economies hard.
"Clearly, in spite of the fact that the global banking system was saved by government recapitalization and guarantees, crisis in the real economy is still deepening and will have to play out in several quarters of negative growth," Dariusz Kowalczyk with CFC Seymour in Hong Kong said in a research note.
Authorities around the world have committed nearly $4 trillion in a variety of schemes including deposit and debt guarantees and taking stakes in struggling banks, to restore confidence after the most severe financial upheaval since the 1930s Great Depression.
JAPAN RATE CUT?
Many economists say the economic effects of the financial crisis set off by the U.S. housing market collapse 15 months ago are only starting to show, even as money markets start to thaw as banks begin lending to each other again.
Supporting that view, Japanese exports grew only 1.5 percent in September from a year earlier, well short of forecasts, prompting worries that the world's second-biggest economy is heading into recession and renewing speculation of an interest rate cut by the Bank of Japan (BOJ).
More worryingly, shipments to the United States fell for the 13th straight month and exports to the European Union recorded a fourth annual decline in five months.
"As global inflation abates and economic slowdown becomes more evident, the BOJ must place more emphasis on downside risks to the economy and will need to cut interest rates as early as next week," said Takeshi Minami, chief economist with Norinchukin Research Institute.
Concerns over the health of the global economy and the strengthening of the yen on the back of a flight to safe havens hit the shares of exporters such as NEC Corp, whose shares fell 9 percent after the electronics maker cut its annual operating profit forecast by nearly a third.
The dollar hit a two-year high against a basket of currencies but a seven-month low against the yen on Thursday as investors sold risky assets.
"On top of a deepening of the financial crisis in Europe and the United States and concerns about a further downturn in the economy, rapid fluctuations in the stock and currency markets are risk factors to the economy," said Jun Matsumoto, a deputy chief Japanese cabinet secretary.
The Reserve Bank of New Zealand cut its official cash rate to 6.5 percent, the lowest since January 2005, citing the global market turmoil and markedly slower economic growth and signaling that more cuts could be on the way despite inflation concerns.
Lee Seong-tae, head of South Korea's central bank, warned that third quarter gross domestic product data due this week will show significant weakness in Asia's fourth-largest economy as well.
Seoul is mulling providing liquidity to cash-strapped domestic brokers and asset managers, after the central bank increased the ceiling on cheap loans to smaller companies.
In a sign that earlier steps to ensure banks can secure enough foreign currency debt are bearing fruit, state-run Export-Import Bank of Korea (KEXIM) said it had raised a total of $150 million from Brazil and Asia, a day after Barclays issued debt backed by a similar government guarantee.
Pakistan, which has requested financial assistance from the International Monetary Fund to help it through its balance-of-payments crisis, said it had approved a fund worth nearly $250 million to support share prices once a floor imposed two months ago is removed on Monday.
REGIONAL INITIATIVES
The financial crisis and steps to address it are likely to be on the agenda of the Asia-Europe Meeting, a summit of leaders from more than 40 countries that starts in Beijing on Friday, though analysts expect little concrete action from it.
Several Asian countries have pushed for regional initiatives to address the current crisis, including Thailand's proposal that they nearly double to $150 billion a scheme for issuing emergency credit lines to one another and earmark further $200 billion to support the region's markets and economies.
Such initiatives are likely to be overshadowed, however, by a summit of the G20, which includes major industrial nations and big emerging economies like China, India and Brazil, on November 15 to discuss financial reforms.
The crisis is ensnaring a growing number of countries, which are turning to the IMF for help. In addition to Pakistan, it is also expected to help Iceland, driven close to bankruptcy, as well as potentially Hungary, Belarus and Ukraine.
"It's not that the fundamentals for emerging markets have changed. Capital is now moving back from the emerging world to the developed world," said Neil Dougall, chief emerging markets economist at Dresdner Kleinwort.
