HONG KONG (Reuters) –
Asian shares slumped and were headed for their biggest daily fall in four weeks, while U.S. Treasuries gained after a U.S. task force rejected turnaround plans for automakers GM and Chrysler.
S&P stock futures dropped and European shares opened lower, with investors also spooked by news on Sunday that Spain would bail out regional savings bank Caja Castilla La Mancha, marking yet another official rescue of a firm hit by the global crisis.
Europe's FTSEurofirst 300 (.FTEU3) fell 1.2 percent in early dealings on Monday and Spanish bank shares fell up to 8 percent.
The U.S. announcement by the White House autos panel marked a stunning reversal for GM and Chrysler and raises the prospect of bankruptcies that could further debilitate the already ailing U.S. economy.
The news sparked a fresh wave of risk aversion among investors, boosting the yen and U.S. Treasuries and setting back a stocks rally that started in earlier March on optimism the global economy may be bottoming out and the United States may finally be getting to grips with toxic debt on banks' books.
News on the U.S. auto firms comes ahead of a busy week that will feature the G20 gathering in London, a policy meeting by the European Central Bank, and employment data in the United States.
"Anything that spells of rejection in terms of bailout these days is not treated very well. We've seen threats of this before on other things, and it tends to spook the market a bit," said David Spry, a research manager at F.W. Holst in Sydney.
The MSCI index of Asia-Pacific stocks outside Japan (.MIAPJ0000PUS) extended its slide after the autos news. It was down 4 percent as of 0610 GMT.
The gauge was headed for its biggest daily percentage fall since a 4.3 percent decline on March 2, when fears about U.S. insurer AIG (AIG.N) had sent global stock markets stumbling.
Asian stocks went on to hit their 2009 low on March 4, before staging a spectacular recovery that as of last week had raised the Asia MSCI index outside Japan by 26 percent.
U.S. stock futures were also hit on Monday, sending the S&P 500 down 2.3 percent. In Japan, the Nikkei average (.N225) slumped 4.5 percent.
"We are still not out of the woods as far as the economic landscape goes. Job losses are mounting in the U.S. and I feel the developments of late represent the economy is just coming off the bottom," said Stephen Roberts, an economist for Nomura in Sydney.
The U.S. autos task force on Monday determined that the turnaround plans submitted by General Motors Corp (GM.N) and Chrysler LLC could not ensure their viability.
The fate of GM has been of particular concern. The U.S. administration pledged only to fund operations at the biggest U.S. auto maker for the next 60 days, instead of granting GM's request for up to $30 billion in loans.
Rick Wagoner, GM's chief executive since 2000, also resigned under pressure from the U.S. task force.
Asian stock indices accelerated losses on the news. Shares in South Korea (.KS11), Hong Kong (.HSI), Taiwan (.TWII), Singapore (.FTSTI), and India (.BSESN) were down more than 3 percent.
The news provides a bleak backdrop for leaders of the world's biggest economies, who gather for a G20 meeting this week in London.
The Financial Times, quoting a draft communique, said the leaders are aiming to restore global growth by the end of 2010.
The meeting comes as Washington has been pressing for more stimulus measures in response to the worst global economic crisis since the 1930s, but some European governments have instead favored more emphasis on regulatory reforms.
Countries have so far responded to the global downturn with a mixture of economic stimulus measures, deep interest rate cuts and in some cases quantitative easing measures that pump money into banking systems.
RISK AVERSION RETURNS
The dollar reversed early gains to drop 1 percent to 96.98 yen to fall further from this month's four-month high of 99.69 yen.
The euro fell 1.5 percent to 128.10, dipping briefly below 128.00, after a steep fall in the previous session.
The autos news also prompted investors to reduce risky bets for higher-yielding currencies that had rallied strongly last week alongside stock markets.
The Australian dollar fell more than 2 percent to 66.14 yen and the New Zealand dollar lost 2.2 percent to 54.45 yen.
U.S. Treasuries, which earlier in the session had already been supported by U.S. Federal Reserve plans to purchase long-dated U.S. government bonds later in the day, advanced.
The 10-year note climbed 12/32 in price to yield 2.716 percent, a fall of 5 basis points from late U.S. trade on Friday. The 30-year bond gained 21/32 in price to 3.580 percent, down 4 basis points.
Gold, another safe-haven asset class, edged higher to $924.20 per ounce from its New York's notional close of
By contrast, oil prices fell $1.19 to $51.19 a barrel, building on losses of around $2 on Friday.
Expectations of weak near-term energy demand and the stronger dollar have also encouraged investors to take profits on oil's recent rally which has put crude prices on course for their biggest monthly gains since October 2007.