Fears of steep losses at corporate bellwethers from Citigroup to Sony hit Asian shares on Tuesday, signalling the extent of the global economic slowdown and bolstering less risky assets such as government debt.
The euro extended its slide to near a one-month low against the dollar as the European Central Bank looks set to cut interest rates this week in response to slowing growth, while oil prices continued to fall after slumping nearly 8 percent on Monday on fears that recessions in some countries will slash energy demand.
Still, losses in Asian shares were not as steep as in previous days, while the Export-Import Bank of Korea sold $2 billion in five-year dollar bonds, indicating demand for new issuance in regional credit markets, albeit at a premium.
"Earnings and economic disappointments are the main contributors to the rise in risk aversion both of which are likely to act as a persistent drag on markets over coming weeks," Calyon analysts said in a note to clients on Tuesday.
The MSCI index of Asia-Pacific stocks outside Japan fell 0.4 percent as of 0230 GMT, marking its fifth consecutive losing session.
After starting the year with gains, the MSCI indicator is now down more than 3 percent so far in 2009.
Concerns over big quarterly losses kept investors on edge. Citigroup could record a fourth-quarter operating loss of over $10 billion, the Wall Street Journal reported on Monday, while U.S. aluminum producer Alcoa announced a fourth-quarter loss.
Asia's export companies are also hurting as major overseas markets such as the United States are mired in recession.
Sony Corp may post an operating loss of about $1.1 billion this financial year, its first such loss in 14 years, a source close to the matter told Reuters, confirming an earlier newspaper report. Its shares dropped 8 percent.
Japanese exporters are being squeezed not only by slower global demand but also the surging yen currency. The Nikkei fell 4.3 percent, after being closed on Monday for a public holiday.
Other Asian markets, some of which saw steep losses on Monday, had more moderate falls. Shares in Australia and China fell more than 1 percent.
But indexes in South Korea, Hong Kong and Taiwan posted modest gains, while Singapore advanced 1.5 percent.
RATINGS TO SUFFER
Easing inflation, largely due to slumping energy prices, is giving central banks room to cut interest rates in response to the economic turmoil.
The ECB is expected to cut key interest rates by 50 basis points to 2 percent on Thurday, according to a Reuters poll, though money market futures were showing investors betting on a 75 basis point cut or even a full percentage move.
The euro fell 0.4 percent from late New York trade to $1.3308 approaching a one-month low of $1.3289 struck the previous day on trading platform EBS.
Against the yen, the euro traded at 119.20 yen within reach of a one-month low of 118.66 yen hit on Monday.
Negative credit ratings actions are expected given the costly stimulus packages being implemented by many world governments at a time when current account balances are under pressure from weakening exports.
U.S. President-elect Barack Obama on Monday sought the remaining $350 billion of federal financial bailout funds from the U.S. Congress, as he seeks ammunition to deal with a "still fragile" financial system.
Standard & Poor's revised its outlook on New Zealand's foreign currency rating to negative from stable on Tuesday citing in part the government's "sizeable" current account deficit. The New Zealand Kiwi tumbling 1.6 percent to $0.5650
The action follows S&P warnings on Spain, Ireland and Greence over the past several days.
Concerns over weakening global demand sent U.S. crude futures down 32 cents to $37.27 a barrel, extending a $3.24 slide on Monday.
Lower-risk assets perceived as being havens for investors in tougher times rallied on Tuesday, with government bonds gaining, sending yields lower.
The benchmark 10-year Japanese government bond yield fell 4.5 basis points to 1.240 percent, moving towards a five-year low of 1.155 percent hit in late December.
March 10-year JGB futures climbed 0.88 point from Friday's close to 139.80 A rise above 140.15 would take futures to their highest since mid-September.
However, credit markets are offering a signal that investors have become more willing to add risk to their portfolios in the new year.
KEXIM on Monday raised $2 billion in five-year bonds after pricing the debt with a coupon of 8.125 percent and a spread of 677.7 basis points over equivalent U.S. Treasuries. That follows Philippines sale of $1.5 billion of new dollar-denominated debt last week.
Offshore bond sales from Asia have been largely frozen since the collapse of investment bank Pehman Brothers in September.
