Asia stocks fall as Spain, Italy worry investors

By PAMELA SAMPSON,AP Business Writer Updated at 2012-06-12 05:46:43 +0000


BANGKOK (AP) — Asian stock markets slid Tuesday as enthusiasm for a European plan to rescue Spain's teetering banks turned to skepticism.

An offer by the 17 countries that use the euro to loan Spain up to €100 billion ($125 billion) to revive banks crushed by bad real estate loans was initially met with euphoria, driving markets up Monday.

But concerns have quickly grown that the rescue is a band aid that won't prevent Spain's severe economic problems from getting worse. A further deterioration in Spain's situation would intensify the broader European debt crisis that is dragging on world growth.

Japan's Nikkei 225 index fell 1 percent to 8,541.78. South Korea's Kospi lost 0.6 percent to 1,855.14 and Hong Kong's Hang Seng was 0.7 percent lower at 18,825.19.

Benchmarks in Singapore, Taiwan and mainland China fell. But Australia's S&P/ASX 200 rose 0.2 percent to 4,073.30.

Spain became the fourth European nation to seek a rescue, after Greece, Portugal and Ireland. Some investors fear it is only a matter of time before Italy becomes the next country to ask for help.

Italy's government on Monday confirmed that the country's recession is deepening. The economy contracted at a quarterly rate of 0.8 percent in the first three months of the year, the worst contraction in three years and double Spain's rate.

Some of the uncertainty spooking markets might be put to rest Sunday, when Greece holds an election that could determine whether Athens will remain in the euro.

Linus Yip, a strategist at First Shanghai Securities in Hong Kong, said that European financial institutions and other parties with an interest in the outcome had time to prepare and so the election might not destabilize markets.

"I think it will be OK. You can see every party is already doing the emergency planning, the European Central Bank is preparing," he said. "The market has regained confidence gradually. The euro had a good rebound last week."

Still, markets remained jittery over China's economic slowdown. A large steelmaker in China, Baoshan Iron & Steel, said it lowered steel prices as demand from makers of appliances and cars slowed. Shanghai-listed Baoshan fell 2.6 percent.

The news sent other Asian steelmakers lower. Japan's Nippon Steel Corp. sank 1.7 percent and South Korea's POSCO fell 2.1 percent.

China Southern Airlines jumped 6.3 percent. The company, China's biggest state-owned carrier by number of passengers, said it is selling shares to its state-owned parent company to raise up to 2 billion yuan ($314 million) to help pay off debt.

Qantas Airways Ltd. soared 13.9 percent after Dubai-headquarters Emirates said it had talked to the Australian flag carrier about a commercial partnership, possibly a code-share arrangement.

Wall Street opened sharply higher Monday but faded throughout the day. The Dow Jones industrial average fell 1.1 percent to 12,411.23. The Standard & Poor's 500 dropped 1.3 percent to 1,308.93. The Nasdaq composite index shed 1.7 percent to 2,809.73.

Benchmark oil for July delivery was down 62 cents to $82.10 per barrel in electronic trading on the New York Mercantile Exchange. The contract fell $1.40 to finish at $82.70 per barrel in New York on Monday.

Among currencies, the euro fell slightly to $1.2494 from $1.2498 late Monday in New York. The dollar rose to 79.52 yen from 79.44 yen.