Stocks Slump, Euro Drops, Bond Risk Soars on Jobs, Debt Concern

By Patrick Chu and James Poole
Feb. 5 (Bloomberg) -- Asian stocks plunged the most in 10 weeks, extending a global rout, the euro fell and bond default risk jumped after an unexpected increase in U.S. jobless claims and on growing concern over European sovereign debt.
The MSCI Asia Pacific Index lost 2.6 percent to 114.59 at
5 p.m. in Tokyo, a two-month low, and the euro fell as much as
0.4 percent against the dollar to the lowest level since May before recovering. Futures for the Standard & Poor’s 500 Index rose 0.2 percent. The Dow Jones Stoxx 600 slumped 0.9 percent to
241.89 at 8:47 a.m in London. The cost of protecting Australian corporate debt jumped the most in almost six months and emerging market equity funds had their biggest outflow in 24 weeks.
Investors are fleeing risk as initial applications for unemployment insurance unexpectedly increased to 480,000 last week and companies from MasterCard Inc. to Monster Worldwide Inc.
reported earnings that trailed analyst estimates. Portugal and Greece led a surge in the cost of insuring against losses on sovereign debt to a record on concern that the most indebted countries will struggle to finance their budget deficits.
The drop in Asia stocks is "very much linked to paring back risks and locking in profits," said Michael Auyeung, who manages about $500 million as chief investment officer at Pacific Mutual Fund Bhd. in Malaysia. "The outperformance of these higher beta markets makes them very susceptible."
More than 20 stocks dropped for each one that advanced on the MSCI Asia Pacific Index. Japan’s Nikkei 225 Stock Average tumbled 2.9 percent to 10,057.09 and Australia’s S&P/ASX 200 Index slumped 2.3 percent even as the nation’s central bank raised its economic growth forecast. The S&P 500 sank 3.1 percent yesterday, the most since April.

BHP, Canon

BHP Billiton Ltd., the world’s largest mining company, declined 3.5 percent in Sydney as commodity prices dropped.
Canon Inc., which gets 78 percent of its sales from overseas, slipped 3.5 percent in Tokyo after the yen gained against the dollar and the euro. Westpac Banking Corp. dropped 2.3 percent.
The Markit iTraxx Australia index jumped 11 basis points to
107 basis points, according to prices from Westpac Banking Corp.
That’s the biggest increase since Aug. 17 and takes the index to its highest since Oct. 9, according to prices from CMA DataVision in New York.
"The rise is on the back of some sovereign concerns that caused weakness in other markets last night," said Evan McSweeney, credit trader at Westpac. "It just seems like the markets are spooked."

Growing Debt Risk

The gains follow jumps by benchmark gauges of corporate credit risk in North America and Europe on mounting concern that governments will fail to close budget gaps. Debt strains in Greece, Portugal and Spain are spreading into markets for corporate debt as investors weigh the potential impact on all asset values if a government funding crisis erupts.
The euro sank to the lowest level in more than eight months against the dollar and headed for a fourth-straight weekly drop versus the greenback and yen. The European currency fell to
$1.3706 from $1.3723 yesterday in New York after dropping to $1.3669, the weakest level since May 20.
The Swiss franc fell from its highest level in more than a year against the euro, fueling speculation the nation’s central bank sold the currency. The franc fell to 1.4727 per euro from 1.4642, after earlier rising to 1.4558, the strongest since Oct.
31, 2008.
"Anxiety about Europe is heightening as deficit problems are starting to look contagious," said Toshiya Yamauchi, manager of foreign-exchange margin trading at Ueda Harlow in Tokyo. "This is weighing heavily on prospects for the euro, causing buying of safe-haven currencies."
Greece’s biggest union approved the second mass strike this month and tax collectors began a 48-hour walkout, showing that Prime Minister George Papandreou’s parliamentary majority may not be enough to implement his plan to cut the European Union’s largest deficit.

Equity Outflows

Emerging market equity funds lost $1.6 billion in weekly withdrawals, the biggest outflows in 24 weeks, as earnings and Greece’s debt woes raised concerns that the global recovery may falter, according to EPFR Global. The Korean won dropped 1.6 percent to 1,169.45 per dollar, near a six-week low, and the Malaysian ringgit weakened 0.6 percent to 3.4405.
"This is basically payback time for the rescue of the global economy last year, which was through government over- spending," said Dariusz Kowalczyk, chief investment strategist in Hong Kong at SJS Markets Ltd. "Because of exposure to exports and high foreign debt, the Korean won is vulnerable to what’s happening with European sovereign credit."
The MSCI World Index of 23 developed markets sank 2.9 percent yesterday. Oil lost 5 percent, the biggest drop in six months, gold tumbled the most since 2008 and a London Metal Exchange index of six industrial metals lost 2.8 percent as dollar gains curbed demand. Monster Worldwide Inc., which offers help-wanted advertisements on the Internet, plunged 12 percent in its biggest decline since 2007. MasterCard lost 10 percent.
Gold for immediate delivery was little changed at $1,066.50 an ounce. Copper for three-month delivery fell 0.8 percent to $6,340 a ton and crude oil was up 0.4 percent at $73.44 a barrel.