By Daniel Inman
HONG KONG (MarketWatch) -- Asian markets and the euro fell
sharply Monday, with Japanese stocks plunging the most in 10
months, as a controversial bank bailout in Cyprus brought concerns
about Europe's debt crisis back to the fore.
Cyprus proposed a tax on the country's bank depositors to
decrease the costs of the bailout. If passed by parliament, the
move would mark the first time that such a strategy has been
implemented during the five-year euro zone crisis. The move may
erode savers' confidence across the currency bloc and add to
popular anger over the handling of the crisis.
"The feeling is that the euro crisis could be back and that you
could see full-on contagion. That is why you're seeing the market
reaction today," said Shane Oliver, head of investment strategy and
chief economist at AMP Capital in Sydney.
"But I suspect that we are going to hear reassurances from other
countries that Cyprus is different and that this plan won't be put
in place elsewhere."
The euro (EURUSD) fell against the U.S. dollar Monday, recently
trading at $1.2955 versus $1.3076 in North American trading Friday.
The yen (USDJPY) also resumed its role as a safe-haven asset as it
strengthened against the U.S. dollar, to a recent 94.918 yen versus
95.96 on Friday.
Continent's influence
Diminished concerns about Europe have been a major support for
risk assets such as Asian stocks and currencies in recent months.
So far this year, the Continent has already weighed on sentiment,
when fears of a political stalemate in Italy prompted selling in
the region. That was another reminder that Europe is still able to
rattle global markets.
Strength in the yen weighed down on Japanese stocks. The Nikkei
Stock Average plunged 2.7% to 12,220.63, the market's largest
percentage decline since May 18.
The selling in Tokyo affected companies that had recently made
strong gains, such as Fast Retailing, (FRCOY) the company behind
the Uniqlo chain of stores, which was down 3.7%. Exporters that
were hurt by the stronger yen include Toyota Motor Corp., (TM) off
3.4%, and semiconductor manufacturer Tokyo Electron, down 5.3%.
"Japan's export economy is much less exposed to the euro than
the dollar, but as both continued to look unlikely to recover
through the course of the day, the initial round of profit-taking
gave way to renewed selling," said David Baran, co-CEO of
Tokyo-based asset manager Symphony Partners.
Panasonic Corp. (PC) bucked the downward trend in Tokyo, gaining
0.6%, after a Nikkei report said that the consumer-electronics
producer plans to significantly downsize its TV operations over the
three years from fiscal 2013.
Stocks in China were lower: On the mainland, the Shanghai
Composite fell 1.7% to 2240.02. The reaction was more extreme in
Hong Kong, where the Hang Seng Index lost 2% to 22083.36.
Investors in China were digesting the new lineup of the State
Council, the national cabinet. Notable for markets was the
appointment of Bank of China Chairman Xiao Gang, who will succeed
Guo Shuqing as head of the securities regulator. Guo was a strong
advocate of financial-market reform.
Bank of China lost 1.7% in Shanghai. Brokerages were lower, with
Haitong Securities down 2.9% and Citic Securities off 2.1%.
Australia's S&P/ASX 200 fell 2.1% to 5015.40 and South
Korea's Kospi Composite dropped 0.9% to 1968.18.
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