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Asia joins global stock rout, safety sought
10:45pm EDT
By Kevin Plumberg




SINGAPORE (Reuters) - Asian stocks tumbled as much as 5 percent on Friday after panic triggered the worst sell-off on Wall Street since the global financial crisis, prompting investors to slash positions and scramble for cash and government bonds.

Fears that the economy is sliding back toward recession and a recent jump in Italian and Spanish bond yields toward danger levels have driven investors to seek cover.

U.S. stock futures were slightly higher after major U.S. markets fell by 4-5 percent overnight, but employment figures due later in the day could trigger further selling if the jobs picture disappoints. .N

Complicating matters was that Japan and Switzerland have intervened this week to weaken their currencies, which were considered the safest in the developed world. That has caused some safety-seeking investors to think twice about stashing money there when financial market volatility is spiking.

So far, retail investors were participating in the heavy selling but institutional equity investors in Asia were not completely liquidating their positions, instead continuing to cut riskier bets and protect their portfolios.

"What you're seeing is a shakeout of all the money that was put to work in the hope that 2011 turns out like last year, where you saw a nice bounce around the same time," said a Hong Kong-based multi-strategy hedge fund manager.

"That could still happen but with the losses that people have already taken this year, looks like no wants to take the risk. It's about preserving capital now."

Japan's Nikkei share average fell 3.4 percent .N225 to the lowest since the week following the country's massive earthquake and tsunami in March.

The benchmark MSCI index of Asia Pacific stocks outside Japan was down 3.8 percent .MIAPJ0000PUS, with investors selling across the sectors, whether they are defensive or cyclical. The index is on course for the biggest weekly drop since May 2010, when the European debt crisis was flaring up.

"Clearly, it's just a knee-jerk reaction to what's going on," said Michael Heffernan, senior client advisor with Austock Group in Australia. "We're going down simply on the fear that Italy can't pay its debts."

Within Asia, markets with high trade exposure to the West and reliance on commodities looked particularly vulnerable.

Taiwan, where the technology sector makes up about half of the equity market capitalization and depends heavily on exports to developed countries, is a weak point in Asia.

The benchmark stock index in Taiwan led Asia, falling 5 percent .TWII.

Europe, where overloaded national balance sheets have bedeviled politicians struggling to grasp the implications, is currently in the eye of the storm.

Italian and Spanish bond yields have kept rising and German bond yields falling, widening spreads the most since the euro was born and causing deep-seated fears about what else policymakers can do to keep the euro zone together.

The European Central Bank resumed buying government bonds after a four-month break and announced new longer-term funding for liquidity-starved banks, investors kept selling peripheral European bonds.

Traders went warily back to the yen. The dollar was down 0.4 percent to 78.83 yen, a day after Japan reportedly spent a record 4 trillion yen ($50.6 billion) to weaken its currency and bolster its export competitiveness.

U.S. 10-year Treasury futures ticked up 6/32 to 128-6/32, just below the Thursday high of 128-12/32, which was the highest since December 2008. The cash yield was at 2.42 percent, a basis point higher than late New York on Thursday when the 10-year yield hit the lowest since October 2010.

The yield has sank 37 basis points so far in August, as a wall of worry sends investors to the most liquid bond market in the world.

Commodity markets extended heavy overnight losses on fears of slowing demand.

U.S. crude for September delivery fell 1 percent to $85.75 a barrel after plunging as much as 6 percent on Thursday and closing at the lowest since February 2011.

In an ominous sign, gold prices were soft despite the spiraling fears hurting risky markets. Investors were having to sell gold positions to cover losses elsewhere in their portfolios.

Spot gold prices eased $3.71 an ounce to $1,644.19 after hitting a record around $1,681 an ounce on Thursday before losing some of the gains.

"This will not be a quiet day. Liquidity will be at a premium," a sales trader with a European bank said.

(Editing by Kim Coghill)

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http://www.reuters.com/resources/r/?m=02&d=20110805&t=2&i=472999773&w=250&fh=&fw=&ll=&pl=&r=2011-08-05T024531Z_01_BTRE7731NDC00_RTROPTP_0_MARKETS-STOCKS





U.S. Debt Reaches 100 Percent of Country's GDP





The U.S. debt surpassed 100 percent of gross domestic product after the government's debt ceiling was lifted, Treasury figures showed Wednesday, according to AFP.

The debt, which had been in somewhat of a holding pattern over the past several weeks, rose $238 billion after President Obama signed the debt-ceiling deal into law Tuesday to avoid the country's first-ever default.

The package is designed to carve $2.4 trillion from the deficit over the next decade. But in the near term, it granted Washington an increase in its borrowing authority worth the same amount.



With that authority, the public debt has climbed to $14.58 trillion, putting it just over the $14.53 trillion size of the country's economy in 2010.

As the country moves into a league with deep-in-the-red nations like Italy and Belgium, fiscal conservatives say the fight to cut spending is far from over.

Senate Minority Leader Mitch McConnell warned Tuesday that Washington will have another fierce debate over spending the next time the debt ceiling is reached -- expected to be in early 2013. McConnell said Washington should welcome, not fear, that debate.

Bipartisan lawmakers are also expected to get to work soon on a joint committee formed by the newly signed debt-ceiling deal. That committee is tasked with finding about $1.5 trillion in deficit savings, to complement the $900 billion in cuts enacted by the first phase of the bill.

The last time the debt topped the size of its annual economy was in 1947 during World War II, according to AFP. But the deficit at the time was driven by war spending -- a degree of spending that ebbed once the war ended. The nation's current deficits were exacerbated by the wars in Iraq and Afghanistan, but are also driven in large part by entitlement programs that will not shrink without fundamental changes to their structure -- officials point as well to lost revenue from the recession, tax breaks and increased domestic spending as contributors to the current deficit hole.

Raising the debt ceiling came hours before Treasury would face the risk of defaulting on the country's loans.

The contentious debate on Capitol Hill rattled Wall Street for more than a week, as the Dow slid for eight straight days before finishing up 29 points Wednesday.




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Zechariah 12:3,9:
And in that day will I make Jerusalem a burdensome stone for all people; And it shall come to pass in that day, that I will seek to destroy all the nations that come against Jerusalem.

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