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TOKYO - Asian stock markets suffered another mauling Wednesday as investors braced for more bad news on US mortgages, dashing hopes that the worst of the recent turmoil might be over.
The latest wave of selling came despite recent efforts by the world's major central banks to restore calm to global markets by pumping billions of dollars of emergency funds into the banking system.
Dealers said that although Asia's exposure to the US mortgage problems appeared to be limited, the fear is that foreign funds will be forced to sell Asian stocks to cover losses on sub-prime loans to risky borrowers.
"Things are still very shaky in the States and that's really driving a lot of the concerns at the moment," said Lorraine Tan, vice president of Asia equity research at Standard & Poor's in Singapore.
"The markets haven't stabilised yet. Unless there's some sign of things stabilising it's still going to be very volatile," she said.
The Tokyo market buckled after two days of relative calm that had raised hopes that markets might have finally hit a bottom after recent plunges. The Nikkei-225 index slumped 2.19 percent to an eight-month low.
A stronger yen hit exporters after the Japanese currency spiked up to four-month highs against the euro and the dollar on an unwinding of risky carry trade bets that play on differences in global interest rates.
Recent market turbulence has prompted investors to seek shelter in safe-haven investments such as US government bonds, dealers said.
"It appears that foreign players have moved aggressively to cash in equities holdings in order to restructure their portfolios in favour of bonds," said Yukihiro Takahashi, a market analyst at Ichiyoshi Securities in Tokyo.
US and European stock markets sustained heavy losses Tuesday as concerns lingered about a potential credit crunch, setting Asian bourses up for another nail-biting day as jittery investors fretted more bad news might come out.
Adding to jitters, reports said a US investment firm, Sentinel Management Group, had frozen a 1.5 billion dollar fund because it has been overwhelmed by investors trying to withdraw their money.
And Japanese megabank Mitsubishi UFJ Financial Group (MUFG) said it had suffered about 43 million dollars in losses on US sub-prime loans, sending its shares sharply lower.
The heavy losses overseas came despite another big injection of funds by the European Central Bank into the banking sector Tuesday, even as ECB chief Jean-Claude Trichet said conditions in money markets were returning to normal.
Amid continued signs of ample liquidity in the Japanese banking system, the Bank of Japan further drained down excess funds on Wednesday, announcing it would withdraw an additional 2.0 trillion yen (17.0 billion dollars).
Investors, however, remained extremely jittery.
Jakarta was punished most with a 6.4 percent tumble, Hong Kong was down 2.87 percent, Singapore lost 3.35 percent, while Manila ended down 4.1 percent and Taipei slumped 3.57 percent.
Wellington closed 1.53 percent lower while Sydney lost 3.0 percent. Kuala Lumpur shed 2.8 percent and Bangkok was down 2.51 percent.
Shanghai's Composite Index was down 0.06 percent, cushioned somewhat by a positive response to news that regulators had eased rules on bond issues by listed firms. Seoul and Mumbai were closed for public holidays.
Analysts, however, remained optimistic that the impact on the Asian economies of the US mortgage problems would be limited.
Asian firms appeared to have limited exposure to the US sub-prime woes, said Tan at S and P.
"At this stage we still believe that the global economic picture is pretty much intact. Even if the US does slow a little bit it shouldn't have a significant impact on growth drivers" in Asia, she added. - AFP/ir
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