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RTRS: Asia stocks off 5 percent, yen surges as crisis spirals
By Kevin Plumberg

HONG KONG (Reuters) - Asian stocks dropped by around 5 percent on Monday, led by exporters, and the yen surged to a 2-year high against the euro as investors doubted a scattered European response to the financial crisis and a $700 billion U.S. bank bailout could prevent a deeper slump in the global economy.

The need for stability drove up U.S. and Japanese government bond prices, especially after a report on Friday showed the U.S. economy in September shed the most jobs in 5- years.

Major European stock markets were expected to open as much as 4.7 percent lower, according to financial bookmakers, after Germany had to scramble to organize a rescue deal for lender Hypo Real Estate (HRXG.DE: Quote, Profile, Research, Stock Buzz) after an initial deal crumbled. The euro dropped to a 13-month low against the dollar below $1.36.

JPMorgan and UBS economists have already predicted the world economy will slip into recession next year, using a common definition of annual growth in global gross domestic product at or below 2.5 percent.

Saul Eslake, chief economist with ANZ Bank in Sydney, does not predict a world recession but sees it as a growing risk.

"The fact that a lot of emerging market economies run current account surpluses insulates them to a degree from the consequences of what's going on in the global financial system," he said. "But they have real economy leakages through their exports and that means they have not decoupled and never were."

Japan's Nikkei share average .N225 ended down 4.25 percent, at its lowest close since February 2004. Sectors that derive their revenues mainly from exports, such as electrical equipment, machinery and auto makers, led the index lower.

The MSCI index of Asia-Pacific stocks outside Japan slid 5.35 percent to the lowest since December 2005.

Hong Kong's Hang Seng index was down 3.35 percent, with shares of China Mobile (0941.HK: Quote, Profile, Research, Stock Buzz), China Construction Bank (0939.HK: Quote, Profile, Research, Stock Buzz) and HSBC (0005.HK: Quote, Profile, Research, Stock Buzz) paving the way lower.

"There's just nothing positive out there. Figures are bad in the States, Europe's bad, Japan's bad and China's probably slowing," said David Spry, research manager at broker FW Holst in Melbourne.


South Korea's KOSPI was down 4.3 percent, led by shares of Samsung Electronics Co Ltd (005930.KS: Quote, Profile, Research, Stock Buzz) and POSCO (005490.KS: Quote, Profile, Research, Stock Buzz), the world's fourth-largest steelmaker.

Korea's markets have been one of the hardest hit by a wholesale move by foreign investors away from perceived risk in Asia. The country's growing current account deficit has turned off investors, and news that local banks were having trouble securing foreign-currency loans added to negative sentiment on the region's fourth-largest economy.

Korea had $198 million in net equity capital outflows last week, relatively light compared with prior weeks, while Taiwan-related funds, a former hotspot for investors, saw its 17th consecutive week of outflows, according to Nomura.

China is the only mutual fund market in Asia that had two straight quarters of net inflows from funds, with $3.9 billion in new money in the third quarter, the firm said.

The euro was down 3 percent at 140.48 yen, after earlier dipping to a 2-1/2-year low below 140 yen. Against the yen, the dollar dropped 2 percent to 103.19 yen after dropping below 103 yen to a near five-month low.

The euro fell 1.1 percent to $1.3617 and earlier fell as low as $1.3595.

The Australian dollar fell sharply on expectations the Reserve Bank of Australia will have to cut interest rates aggressively later this week when it meets to bolster its economy. The Australian currency was down 3.2 percent against the U.S. dollar and the yen.

Oil prices fell $2.50 to around $91.40 a barrel, dragging down prices of metals and grains, on expectations damage from dysfunctional financial systems in developed economies would almost certainly cause them to shrink.

Europe's scattered response to the financial crisis enveloping the region also weighed on investors.

Divisions in how European leaders think best to approach the financial crisis were clearly on display.

Italian Prime Minister Silvio Berlusconi said on Sunday that Italy would revive the idea of a common bank bailout fund at a meeting of finance ministers on Monday, only a day after the leaders of Europe's four biggest economies -- Germany, France, Britain and Italy -- decided against a coordinated bank rescue.

The 10-year Japanese government bond future was up 0.9 point at 138.55, rising for a third day.

The yield on the 10-year U.S. Treasury note, which moves in the opposite direction of the price, fell to 3.54 percent after earlier dropping to 3.52 percent, down from 3.60 percent late on Friday.