Worries About Italy’s Debt Drag Down Asian Markets

HONG KONG — Growing nervousness about the debt crisis in Europe and the prospects for global growth continued to pummel both Asian stock markets and the euro on Tuesday as investors took refuge in what they saw as safer assets.

Stock markets across Asia dropped on Tuesday, continuing a slide that had sent equities around the world lower as investors began to fret that Italy, too, could fall victim to its combination of high debt, feeble growth and political paralysis.

Those worries, combined with the prospect of a possible stalemate in U.S. budget talks and slowing growth in China, pushed down the Dow Jones industrial index 1.2 percent on Monday.

There was no respite on Tuesday. In Japan, the Nikkei 225 index fell 1.5 percent to 9,915 points by the lunchtime break in Tokyo.

The key market indexes in Taiwan and South Korean slumped 1.9 percent, the S..P/ASX 200 index in Australia fell 1.8 percent, and in Singapore, and the Straits Times index dropped 1 percent.

In Hong Kong, the Hang Seng sagged 2.1 percent, while in mainland China, the Shanghai composite index declined 1.1 percent by late morning.

The euro, too, weakened, falling to below $1.40, its weakest since March. The European currency bought $1.397 by late morning in Asia.

The worries about Italy have further shaken already fragile global market sentiment, even though Italy retains solid debt ratings, a sound banking system and a relatively small budget deficit compared to the size of its economy. The jitters prompted the Italian stock market regulator on Monday to impose emergency rules against short selling after shares in Italian banks slumped for a fifth straight session.

The cost of insuring Italy’s sovereign debt against default surged to an all-time high, and the interest on its 10-year bond leaped to a record 5.67 percent.

“The current escalation of the euro area periphery crisis is the third period in which the problems facing Greece, Ireland and Portugal have seriously threatened more serious contagion in the euro area,” Paul Robinson, an analyst at Barclays Capital, wrote in a note.

As serious as the situation is, however, he added, “the previous episodes during which Spain and Italy were significantly affected proved temporary, and the situation facing both economies is far less serious than in Greece’s case.”

Article source: http://www.nytimes.com/2011/07/13/business/worries-about-italys-debt-drag-down-asian-markets.html?partner=rss&emc=rss