Deepening economic gloom and fears about the health of the global finance sector pushed Asian shares to their lowest level this month on Wednesday, prompting investors to move to low-risk assets such as regional bonds.
The euro briefly fell to a new 2-½ month low against the dollar as the currency continued to reel from rating agencies' warnings that a deep recession in Eastern Europe will inflict more damage on struggling Western European banks.
U.S. economic data on Tuesday added to the grim mood, showing a severe slump in factory activity appeared to be getting even worse this month, while sentiment among U.S. home builders shows few signs of recovering after the bursting of the housing bubble.
"The economic data on the global front continues to get worse, and the Australian economy is slowing very quickly. So I think you need to start factoring in further weakness for equity markets globally," said Savanth Sebastian, equities economist at broker CommSec in Australia.
The MSCI index of Asia-Pacific stocks outside Japan fell 1.1 percent by 0245 GMT, after earlier toughing its lowest level since Jan. 26.
The index is headed for its sixth losing session out of the past seven, bringing its losses so far this year to about 11 percent.
Still that is a better peformance than U.S. markets, where the S&P 500 and the Dow Jones average are at near their lowest since Nov. 20, which had marked 11-year lows.
The global declines come despite government actions to stem their deteriorating economies.
U.S. President Barack Obama signed a $787 billion economic stimulus bill into law on Tuesday, and was expected to lay out a strategy later in the day to stem home foreclosures and address the housing crisis — one of the chief causes of the global financial crisis and sharp economic slowdown.
Other sectors such as auto makers are also in big trouble as consumer demand slumps in the face of recession. General Motors Corp and Chrysler LLC requested nearly $22 billion in combined additional U.S. government aid on Tuesday.
Japan's Nikkei average fell 1.2 percent, with indexes in Australia and Shanghai falling more than 2 percent each.
Shares in South Korea and Hong Kong fell more than 1 percent each, with more modest losses seen elsewhere.
Among the leading decliners of the day were Asian financial firms from Japan's Mitsubishi UFJ Financial Group to South Korea's KB Financial Group
EURO HIT
The euro kept tumbling following Moody's report saying banks in Eastern Europe with large loan books faced downgrades and their parent banks' ratings could also weaken.
Standard & Poor's joined the fray, saying in an interview with Reuters that the growing difficulties faced by Western banks in supplying funding to their subsidiaries in emerging Europe could prompt an overall ratings view for the region's banks.
"With growing credit concerns in Europe, investors seem to be continuing to unwind their positions and securing cash in dollars," said Saburo Matsumoto, senior manager at Sumitomo Trust Banking in Japan.
The euro fell as low as $1.2558, its lowest since Dec. 4, although it later edged up 0.1 percent from late U.S. trade on Tuesday to $1.2595 The euro was steady at 116.18 yen.
The dollar fell 0.2 percent to 92.22 after it rose to a more than one-month high of 92.75 yen on Tuesday, helped in part by safe-haven bids.
Asian emerging currencies have also been hit as investors shed riskier assets.
The South Korean won dropped as much as 1.4 percent to 1,475.8 per dollar, its weakest in more than 10 weeks, from Tuesday's domestic close The currency has lost 5.1 percent over the past six losing sessions on fears the country is facing a possible foreign exchange crisis in March, which have been dismissed by the government..
Regional bonds gained as part of this migration towards less risky assets. March 10-year Japanese government bond futures rose 0.37 point to 139.75, while the benchmark 10-year yield dropped 3 basis points to 1.250 percent.
In commodity markets, U.S. crude futures were steady at $34.98 a barrel after slumping nearly 7 percent on Tuesday. Gold was also little changed at $966.95 an ounce after touching a high of $973.20 on Tuesday, its highest since July 22 due to its safe-haven appeal.
