Friday, November 18, 2011

Asian shares fall on fears over Europe fund

(Reuters) - Asian shares fell for a fourth day in a row Friday as Europe's funding difficulties intensified, with Spanish borrowing costs hitting an unsustainable level and premiums for dollar funds rising further.

In a sign that global funding strains may spread to Asia, benchmark three-month euro/yen interest rates futures fell to an eight-month low Friday on concerns that tightness in dollar money markets may prompt non-Japanese banks to raise yen at a higher rate.

Worries over the European debt crisis prompted investors to shed riskier commodities, extending their slide from Thursday when prices took their steepest tumble since September.

MSCI's broadest index of Asia Pacific shares outside Japan .MIAPJ0000PUS slid 2.2 percent with the materials sector .MIAPJMT00PUS leading the decline, as a slide in commodities prices hit the stock market in resource-dependant Australia.

The index, which fell the past two weeks, was set for its biggest weekly loss in about two months. It was down about 4.3 percent for the week and about 17 percent this year.

Japan's Nikkei stock average .N225 fell 1.2 percent and also headed for a third weekly loss. It is down about 18 percent so far in 2011. .T

"The euro zone debt crisis is turning into a global liquidity crisis, and leading to a vicious cycle of intensifying funding tightness spurring dumping of risk assets," said Kazuto Uchida, an executive officer and general manager of the global markets division at the Bank of Tokyo-Mitsubishi UFJ.

European shares were likely to fall, with spreadbetters expecting London's FTSE .FTSE, Frankfurt's DAX .GDAXI and Paris' CAC 40 .FCHI to drop 1.2 to 1.3 percent.

New Italian Prime Minister Mario Monti Thursday pledged his country would embark on radical fiscal reforms to pull itself out of the debt crisis. But investor jitters remained firmly in place as euro zone governments struggle to raise funds and banks refrain from lending, seizing up market liquidity.

Euro/dollar three-month cross-currency basis swaps, the cost of swapping euros for dollars, widened to -136 basis points Thursday, the most since the 2008 financial crisis.

"Focus right now is on short-term dollar funding, but longer-term funding from six months out to a year is also getting tighter. Major central banks must take a coordinated action to ensure all these funding needs are met," Uchida said.

(Additional reporting by Mari Saito; Editing by Richard Borsuk and Sugita Katyal)

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