Asian stocks hit by European crisis

Worries about Europe’s debt crisis, signs of weak global growth and expectations of lower US corporate earnings sent Asian stocks down today.

Japan’s Nikkei 225 index tumbled 1.7% to 8,625.26, Hong Kong’s Hang Seng index fell 0.4% to 20,850.25, and South Korea’s Kospi lost 1% at 1,958.41, while Australia’s S&P/ASX 200 shed 0.4% to 4,488.30.

The International Monetary Fund said yesterday that Spain’s economy – already in double-dip recession – will contract by 1.3% next year – more than double its previous prediction.

Spain, with near 25% unemployment, has introduced a series of austerity and labour measures in a desperate bid to bring down its deficit and convince investors it can manage its finances without outside help.

Madrid is pushing for the European Central Bank to intervene in the secondary market and bring down its borrowing costs, but the ECB insists the country must formally apply for aid first.

“Spain remains the major focal point and in this regard there is no progress in the country moving forward with a bailout request,” analysts at Credit Agricole CIB in Hong Kong said in a market commentary.

“The market tone will continue to remain cautious but we don’t expect a major relapse in risk appetite.”

The IMF also cut its estimates for global economic growth, warning that mature economies are at risk of recession.

Investors on Wall Street were discouraged by the IMF report as well as expectations of lower corporate earnings. Analysts expect earnings for Standard & Poor’s 500 companies to be lower than a year ago – the first time that has happened in almost three years.

The Dow Jones industrial average fell 0.8% to 13,473.53, the Standard & Poor’s 500 index fell 1% to 1,441.48, and the Nasdaq composite index fell 1.5% to 3,065.02.

Benchmark oil fell 31 cents to 92.08 US dollars per barrel in electronic trading on the New York Mercantile Exchange.

The price of oil rose more than 3% yesterday on concerns about supplies from the Middle East and the North Sea. The contract rose 3.06 US dollars to finish at 92.39 dollars per barrel.

In currencies, the euro fell to 1.2861 dollars from 1.2880 late yesterday in New York. The dollar rose to 78.25 yen from 78.22 yen.