Asian Markets Follow U.S. Stocks Down; Yields Rise

Pacific Rim stock markets tumbled in unison today on the heels of Wall Street’s deep sell-off on Friday, and U.S. Treasury bond futures in Chicago suffered fresh selling that drove interest rates higher.

The declines in most Pacific Rim markets at midday were somewhat more severe than what U.S. stocks sustained, but smaller markets are inherently more volatile, traders noted.

Tokyo’s stock market, however, was hit significantly less, with the blue-chip Nikkei-225 stock index down 313.14 points, or 1.6%, to 19,842.73 in afternoon trading. The Dow Jones industrial average had plunged 3% on Friday.

Elsewhere in Asia and the Pacific today, Singapore’s Straits Times index was off 3.6% at midday, Bangkok’s SET index was down 3.3% and Sydney’s All Ordinaries closed with a 3.5% loss. Hong Kong stocks, which had been among the world’s hottest this year, fell much more sharply, with the Hang Seng index down 902.54 points, or 8%, to 10,315.25 at midday.

In Chicago, meanwhile, late-Sunday trading of Treasury bond futures picked up where Friday’s selling panic left off. But by the end of the session the yield on the 30-year T-bond future for June was at 6.78%, not a substantial rise from Friday’s close of 6.72%.

Bond yields also soared in some Pacific Rim countries today. In Australia the benchmark 10-year government bond yield jumped to 9.19% from 8.71% on Friday.

Friday’s carnage in U.S. markets was triggered by a surprisingly strong employment report, as the government said the U.S. economy created 705,000 jobs in February.

The report could mean that the Federal Reserve Board will refrain from further interest rate cuts.

In Asia, where Japanese interest rates have already been rising this year with expectations for an economic recovery, the threat of higher U.S. rates encouraged sellers to dump stocks because rising Japanese and American rates could force the cost of credit up elsewhere in the Pacific Rim.

“There’s a little bit of blood on the streets,” said Simon Catt, trader at Australian brokerage Hartley Poynton.

Although Asian markets’ slide today was clearly sparked by the U.S. sell-off, local markets also have their own problems.

In Tokyo, concerns about using public funds to solve the continued housing loan crisis weighed on the market. Opposition Diet members have turned proposals to use $6.52 billion in taxpayer money to bail out seven insolvent banks and housing lenders into a symbolic political issue.

And across Asia, anxieties about heightening tensions between China and Taiwan took a toll.

In one bit of potentially good news, Japan posted a 1.9 billion yen ($18 million) current-account deficit in January, its first monthly deficit in five years. That could help bolster the dollar at the expense of the yen.

Indeed, the dollar remained fairly strong in Asian trading despite Wall Street’s plunge. The dollar was trading at 105.50 Japanese yen in Asia at midday today, down only slightly from 105.72 on Friday in New York.

But influential economist C. Fred Bergsten pressured the dollar by predicting Sunday that it will soon fall to between 90 and 100 yen.

Meanwhile, in Chicago, officials on the Board of Trade said they were increasing margins on Treasury bond futures contracts, potentially making it more difficult to speculate in the contracts. But the Board also widened the permissible daily swing in the main contracts’ value, after it closed down the daily limit in Friday’s selling wave.

As for U.S. stocks, Michael Metz, strategist at Oppenheimer & Co., predicted that stocks are about one-third through a “correction” while bonds are about three-fourths through their pullback. “I think the [30-year T-bond] yield will back up to 7%,” Metz said.

But Tony Dwyer, market strategist at Josephthal Lyon & Ross, said that “while Friday was pretty nasty, we’re still in a bull market.”

Times wire services contributed to this report.