Asian markets cautious on Europe contagion fears

HONG KONG — Asian markets were mostly higher on Thursday but trade was cautious after two ratings agencies sounded alarm bells over the potential impact of the eurozone debt crisis on major banks. Despite new governments taking over in Italy and Greece to push through key reforms, the cost of borrowing for under-pressure countries remained dangerously high. Tokyo finished 0.19 percent, or 16.47 points, higher at 8,479.63, Sydney rose 0.25 percent, or 10.8 points, to 4,258.2 and Seoul added 1.11 percent, or 20.60 points, to 1,876.67. In the afternoon Shanghai was 0.43 percent up but Hong Kong slipped 0.24 percent. The region's gains, reversing earlier losses, followed a two-day sell-off caused by the European uncertainty. Fitch ratings agency warned that the contagion effects on US banks were "potentially large" if the crisis spreads beyond Greece, Ireland, Italy, Portugal, and Spain. It pointed to the risks in France, where banks are being weakened by their own eurozone exposure, while Paris is cutting spending to avoid losing its AAA credit rating. Fitch said the top five US banks had $188 billion in exposure to France at the end of the second quarter, $114 billion of it to French banks. Wall Street's three main indexes ended lower Wednesday following the announcement, with the Dow Jones Industrial Average off 1.58 percent, the S&P 500 down 1.66 percent and the Nasdaq losing 1.73 percent. Adding to the sense of fear was Moody's decision to downgrade 10 German public-sector banks, saying they were now less likely to receive state support if needed. "Contagion from the eurozone debt crisis is spreading quickly, threatening to turn a regional crisis into a global crisis," Credit Agricole said in a note to clients. "As highlighted by Fitch Ratings, further contagion would pose a risk to US banks," it said, according to Dow Jones Newswires. The warnings highlighted the possible knock-on effects for Asian investors. "European banks will likely have to continue reducing risky assets," said Kenichi Hirano, operating officer at Tachibana Securities. "Asian economies, seen as the engine of global growth, may be damaged... as (European banks) pull their funds out of emerging economies," he said. There was a little respite in Europe after Italy's new Prime Minister Mario Monti put together his new cabinet charged with pushing through legislation aimed at putting the economy back on an even keel. Bond yields remain high And in Greece, the newly installed premier Lucas Papademos kicked off talks with international banks on reducing the country's mountain of debt, after winning overwhelming support from parliament in a symbolic vote of confidence. However, bond yields remained in or close to the seven percent danger zone considered unsustainable for governments to service their debts. Italian benchmark 10-year bond yields once again topped 7.16 percent, while in Spain—whose massive debt and crippling unemployment has also come into focus—the cost of borrowing hit 6.37 percent. Dealers are now looking ahead to the sale later in the day of Spanish and French bond auctions. Shanghai dealers were little moved by the Chinese central bank's announcement that it would "fine-tune" monetary policy, raising hopes that restrictions imposed in the past year will be relaxed. On currency markets, the euro edged up after sinking in New York. The common unit fetched $1.3505 and 103.99 yen in Tokyo, from $1.3451 and 103.70 yen in New York late Wednesday. The dollar was at 77.01 yen from 77.05 yen. Oil eased on profit-taking after hitting five-month highs late Wednesday. New York's main contract, West Texas Intermediate (WTI) light sweet crude for December delivery, fell 37 cents to $102.22 per barrel. Brent North Sea crude for delivery in January retreated 44 cents to $114.44. Gold was trading at $1,765.50 an ounce by 0630 GMT, compared with $1,773.15 late Thursday. In other markets:

• Taipei was almost unchanged, nudging 0.29 points higher to 7,387.81. HTC rose 0.89 percent to Tw$689.0 while TSMC was 0.4 percent higher at Tw$75.7.
• Manila fell 0.16 percent, or 6.96 points, to 4,334.66.
• Wellington closed flat, edging 0.69 points lower to 3,280.73. Telecom fell 1.0 percent to NZ$2.525, while gaming group Sky City Entertainment rose 0.9 percent to NZ$3.53.

— Agence France-Presse