Asian stocks muted as debt fears loom over Italy

November 8, 2011 - 4:10 AM
China World Markets

An investor gestures in front of the stock price board at a private securities company in Shanghai, China, Monday, Nov. 7, 2011. World stocks stalled Monday as investors remain unsure whether Greece will be able to work itself out of a debt crisis despite a weekend deal by the country's leaders aimed at implementing a controversial austerity program. The benchmark Shanghai Composite Index lost 0.73 percent, or 18.5 points, to 2,509.80. (AP Photo)

BANGKOK (AP) — Asian stock markets struggled to advance Tuesday as worries intensified that Italy could become the next domino to fall in Europe's debt crisis even as Greece appeared to be edging back from the brink.

Benchmark oil hovered above $95 per barrel, while the dollar was higher against the euro and the yen.

Japan's Nikkei 225 index fell 1.3 percent to 8,651.48. South Korea's Kospi swung into negative territory midsession, slipping 0.9 percent to 1,902.64. Hong Kong's Hang Seng was 0.1 percent higher at 19,715.93 and Australia S&P/ASX 200 rose 0.5 percent to 4,293.80.

Benchmarks in Malaysia, Indonesia, the Philippines and New Zealand were higher, while those in India and Taiwan were lower. Shares in mainland China and Singapore swung between gains and losses much of the session.

Wall Street finished higher Monday on news that Greece would receive the latest installment of emergency aid as long as the country's two main parties commit to implementing economic reforms agreed to by the country's previous government.

The Dow rose 0.7 percent to close at 12,068.39. The Standard & Poor's 500 index rose 0.6 percent to 1,261.12. The Nasdaq rose 0.3 percent to 2,695.25.

Francis Lun, a Hong Kong-based analyst, said Greece's willingness to implement changes demanded by the European Union — and hopefully prevent the country from descending into insolvency — helped some markets eke out slight gains.

"Markets rose slightly today mainly because I think Europe managed to temporarily solve the problem," Lun said. "Investor confidence has been restored. They went bargain-hunting."

Further gains could come Wednesday with the release of monthly inflation data from China. Price increases are expected to moderate, reinforcing expectations that the government will refrain in the near-term from monetary tightening.

"China's number should fall below 6 percent because the price of pork has been falling sharply this month," Lun said. "That one item alone will bring the CPI figure below 6 percent. That means policymakers can breathe a sigh of relief that high inflation has peaked."

Meanwhile, as Greece's economy hobbled along on life support, worries began to surface about Italy, where the prospect of financial disaster was real because of Rome's huge debts and slow growth.

Unlike Greece, Ireland and Portugal — the three countries that Europe has already bailed out — Italy's economy could be too large to rescue.

Soaring borrowing rates in the past week have intensified pressure on Premier Silvio Berlusconi to resign.

The yield on Italy's 10-year bonds jumped Monday to 6.67 percent, drawing uncomfortably near the 7 percent threshold that forced both Ireland and Portugal to accept bailouts.

"Traders do not want to see yields advance to 7 percent and above, after the fate suffered by the likes of Greece, Ireland and Portugal when their yields rose to those levels," Stan Shamu of IG Markets in Melbourne wrote in a report.

Investors want the Italian government to quickly pass measures to boost growth and cut debt. But defections from Berlusconi's coalition government mean he no longer commands enough loyalty to pass the reforms.

In Tokyo, embattled Olympus Corp. plummeted 29 percent after admitting it had used a series of acquisitions to cover up losses dating back to the 1990s.

Japan's exporters continued to be battered by sustained strength in the yen, which reduces overseas profits. Copier maker Ricoh Co. fell 3.2 percent. Technology company Fujitsu dropped 3.8 percent and Hitachi Ltd. lost 2.1 percent.

Most actively traded shares in Hong Kong included Bank of China, up 1.9 percent and Sinopec, Asia's biggest oil refiner, up 3.5 percent. Chinese Internet and mobile company Tencent Holdings fell 5.6 percent.

In energy trading, benchmark crude for December delivery was down 8 cents at $95.43 in electronic trading on the New York Mercantile Exchange. The contract rose $1.26 to settle at $95.52 in New York on Monday.

The euro was lower at $1.3745 from $1.3761 on Monday in New York. The dollar was slightly higher at 78.04 yen from 78.02 yen.