Asian Stocks, Forex Extend Global Selloff;Yen Rallies

SINGAPORE (Dow Jones)--Extending a global selloff Asian stocks plunged Friday as traders sought to shore up capital wherever possible amid renewed jitters about the impact of a liquidity crisis in U.S. credit markets. The selling also made its way to several Asian currencies and to the region's offshore bond and credit markets, though the yen was buoyed amid unwinding of the carry trade. "This is what happens in a liquidity crisis, where they have positions which can be translated back into cash quickly, they will sell them," said Khiem Do, manager of the Asia Pacific Fund and head of Asian Multi-Asset at Baring Asset Management in Hong Kong. Japan's Nikkei Stock Average was recently off 2.5% to 16746.50; Korea's Kospi index was off 4.1% to 1831.19, Singapore's Straights Times Index lost 3.3% to 3298.42, the Standard & Poor's Australia Stock Exchange 200 slid 2.9% to 5986. In Hong Kong the Hang Seng Index fell 3.1% to 21,754.04.

As with U.S. and European markets overnight, selling in Asia was broad-based. Brokerages and banks were among the worst hit. Australia's Macquarie Bank (MBL.AU), lost 6.1% to A$72.79, Korea's Samsung Securities fell 5.6% to KRW79,300, and in Singapore, DBS Group slid 4.1% to S$20.90. On Friday Citigroup cut its price target on DBS and other Singapore banks to reflect, "re-pricing of risk," that might limit what traders are willing to pay for these stocks amid credit market worries. Still, the firm, in a note to clients, retained a buy rating on the group - arguing that the recent slide is a buying opportunity and that the banks' exposure to now illiquid credit instruments is limited.

The yen-carry trades unwinding hit the Australian dollar and New Zealand dollar particularly hard. The New Zealand dollar plunged below Y88 to its lowest level since May 25. The selling began late in the trading session Thursday following word from France's BNP Paribas (13110.FR) that it suspended three of its asset-backed securities funds because of a "complete evaporation of liquidity." Also fueling the fire was a report in the Wall Street Journal that U.S. lender Countrywide Financial Corp. (CFC) is facing "unprecedented disruptions" in debt and mortgage-finance markets that could hurt earnings and the company's financial condition. Countrywide is the largest U.S. home mortgage lender in terms of loan volume. Traders said moves by the European Central Bank and U.S. Federal Reserve to inject billions of dollars of fresh funds into money markets contributed to uncertainty overnight, prompting some head scratching about how worried regulators are. Both the Bank of Japan and Reserve Bank of Australia made similar moves Friday, though Australian regulators played down the liquidity injection as routine operations

The Monetary Authority of Singapore also injected S$1.5 billion into the local money market Friday, traders said. The move came after MAS said earlier in the day that it was ready to intervene to stabilize the local market. Still, analysts expectations for further interest rate hikes were mixed. "We are still expecting the BOJ, ECB, BOE, BOC to hike rates the next few weeks, but if this panic gets worse, we may need to change that outlook," said JPMorgan Chase Bank currency strategist Tohru Sasaki. Barclays Capital's chief JGB strategist, Masuhisa Kobayashi, said the sudden supply of liquidity by the world's central banks can be interpreted either as a reaction to crisis or as a step to prevent one. "Taking the latter, more optimistic interpretation, we believe the possibility of an August rate hike should not be ruled out," he said. According to Credit Suisse, the likelihood of a rate increase by the BOJ at its meeting in late August fell to 37% from 64% the day before.

-By Mohammed Hadi, Dow Jones Newswires; 65-6415-4147; mohammed.hadi@dowjones.com. (END) Dow Jones Newswires