Asian stocks fall on Europe bank worries

By PAMELA SAMPSON | December 28, 2011 | 9:50 PM EST

BANGKOK (AP) — Asian stock markets slumped Thursday amid new signs of pressure on Europe's banking system and a downturn on Wall Street.

Japan's Nikkei 225 index fell 0.8 percent to 8,360.80. South Korea's Kospi lost 0.5 percent to 1,817.92 and Hong Kong's Hang Seng Index was 1 percent lower at 18,335.38.

Trading was quieter than normal. Many traders go on vacation the week between Christmas and New Year's.

The European Central Bank said banks had parked $590.72 billion with it overnight, surpassing the record set only Monday. That means European banks were less willing to take the risk of making short-term loans to each other, opting instead to earn low interest rates from the ECB.

The move shook confidence in the euro currency, which dropped to $1.2910 at one point on Wednesday — its lowest level against the dollar in nearly a year.

"As we have seen time and time again throughout 2011, when EUR/USD falls, so does equities, and so does gold, with traders buying into fixed income assets," Chris Weston of IG Markets in Melbourne wrote in a research note.

Even successful bond auctions in Italy failed to lift the euro against the dollar. Demand for Italian bonds was strong Wednesday, and the country was able to pay lower interest rates.

That's a sign that investors are more confident about Italy's ability to repay its debt. The country recently passed a big package of budget-cutting measures.

In currency trading Thursday, the euro fell to $1.2918 from $1.2941 late Wednesday in New York. The dollar fell to 77.80 yen from 77.91 yen.

On Wall Street, the Dow Jones industrial average fell 1.1 percent to 12,151.41. The S&P 500 fell 1.3 percent to 1,249.64. The Nasdaq composite declined 1.3 percent to 2,589.98.