Asian Stocks Slump as China Rate Cut Disappoints

By JEREMIAH MARQUEZ
|  Tuesday, Dec 23, 2008  |  Updated 4:33 AM CDT
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Asian Stocks Slump as China Rate Cut Disappoints

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Hong Kong's Hang Seng Index dropped 2.8 percent to 14,220.79 while Shanghai's main index plummeted 4.6 percent to 1,897.22 as both markets came under pressure after Beijing lowered a key interest rate late Monday.

HONG KONG — Asian stock markets fell Tuesday as an interest rate cut in China disappointed investors and a profit warning from Toyota Motor Corp. raised concerns the global slump would only worsen. European markets were modestly higher.

There was little cheer before the year-end holidays. Resource firms tumbled along with oil prices and carmakers dropped sharply on news Toyota expects to post its first annual operating loss in 70 years.

South Korea's Kospi retreated 35.3 points, or 3 percent ,to 1,144.31, Singapore's benchmark lost 1.2 percent and Australia's key index fell 0.7 percent. Japan's market was closed for a national holiday.

In China, Hong Kong's Hang Seng Index dropped 2.8 percent to 14,220.79 while Shanghai's main index plummeted 4.6 percent to 1,897.22 as both markets came under pressure after Beijing lowered a key interest rate late Monday.

Investors were unimpressed by 0.27 percentage point cut on the benchmark one-year lending rate to 2.25 percent, its lowest level since February 2004. Many had expected a half-point cut, analysts said. It was the fifth cut in four months as Beijing rushes to revive economic growth.

After rallying off last month's lows, Asian markets were succumbing to selling as many investors moved to close out their positions before the end of one of the most tumultuous years in decades.

"There's a lot of profit-taking before the holiday," said Ben Kwong Man Bun, the chief operating officer at KGI Securities in Hong Kong. "People believe the upside will be very limited for now. The global economy is facing a huge problem."

In Europe, stocks traded mostly higher early in the session. Britain's FTSE 100 and France's CAC 40 gained about 0.7 percent each, while Germany's DAX was up by about 0.1 percent.

Asia's lurch downward came after Wall Street fell overnight.

Investors spooked by the dismal news from Toyota and U.S. drugstore operator Walgreen Co. sent the Dow lower by 59.34 points, or 0.69 percent, to 8,519.77 — its fourth straight daily loss. The broader Standard & Poor's 500 index fell 16.25, or 1.83 percent, to 871.63.

U.S. stock index futures gained slightly. Dow futures were up 23 points to 8,562, while S&P futures were up 4.7 points, or 0.5 percent, to 876.

In other markets, Taiwan's main index slumped 2.9 percent after the government reported that the November unemployment rate rose to a five-year high. Russia's main dollar-denominated index was little changed.

Chinese financials were weaker as investors worried the meager rate cut would hurt banks' balance sheets. Leading lender Industrial & Commercial Bank of China fell 2.6 percent in Hong Kong, and China Life Insurance lost 4.8 percent in Shanghai.

Car companies also saw heavy selling amid worries about demand after Toyota's bleak outlook.

South Korea's Hyundai Motor Co. plunged 10.9 percent and its affiliate Kia Motors Corp. dived 15 percent. The two companies, which together form world's fifth-biggest automotive group, slashed their joint 2008 sales forecast by 12.5 percent Monday.

Meanwhile, withering prices for raw materials pulled down resource firms across Asia.

In Hong Kong trade, Chinese offshore oil firm CNOOC dropped 6 percent while PetroChina, the nation's largest oil producer, fell back 5 percent. Australia mining giant BHP Billiton Ltd declined 3.9 percent in Sydney.

Crude oil dipped in Asian trade, with light, sweet crude for February delivery edging down 9 cents to $39.82 a barrel on the New York Mercantile Exchange. Oil prices have fallen 73 percent since July amid fears that massive job layoffs and plummeting consumer spending in the U.S. are weakening global demand.

In currencies, the dollar was slightly lower at 90.10 yen from 90.13 yen late Monday in New York. The euro edged up to $1.3972 from $1.3951 on Monday.

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