May 25, 2012, 09.38 AM | Source: Reuters
Asian shares fell to their lowest levels of the year on Friday as early bargain hunting gave way to worries about Europe's raging debt crisis and weak global growth.
The MSCI's broadest index of Asia-Pacific shares outside Japan slipped 0.7 percent, after edging up as much as 0.3 percent earlier, hitting its lowest since late December as worries about a possible Greek exit from the euro zone continued to weigh on the market.
The pan-Asia stock index was set for a third consecutive week of losses, its longest losing streak in six months. In late February, it had been up some 15 percent from end 2011 levels.
Japan's Nikkei stock average was flat, but looked set for its longest weekly losing run in 20 years.
U.S. stock futures fell 0.4 percent, after Wall Street ended slightly higher overnight.
Concerns about global growth and a failure by European policymakers to make any significant breakthroughs to resolve the debt crisis have curbed risk appetite and strengthened demand for highly rated government bonds. Germany's 10-year government bond yield fell to a record low of 1.35 percent on Thursday.
The euro remained pressured by the uncertain outlook for the fate of Greece - as well as that of the entire currency bloc - and traded down 0.1 percent at $1.2525 after falling to its lowest since July 2010, at $1.25155, on Thursday.
The dollar index measured against key currencies hovered near a 20-month high of 82.376 hit on Thursday, due to its safe-haven appeal.
"Markets have priced in a very negative scenario for Greece as well as deteriorating growth prospects in the euro zone, but with them very much focused on the tail risk of Greece leaving the euro bloc, the euro remains highly vulnerable," said Masafumi Yamamoto, chief FX strategist at Barclays.
A poll on Thursday showed Greece's anti-bailout leftist SYRIZA party was maintaining its lead ahead of a June 17 election which may determine whether the country remains inside the common currency bloc.
Asian credit markets were firmer, with the spread on the iTraxx Asia ex-Japan investment-grade index narrowing by 2 basis points.
Oil, which retained its gains earlier, succumbed to the general retreat in broader markets, with U.S. crude futures down 0.1 percent at $90.61 a barrel and Brent futures flat at $106.54 a barrel.
Spot gold continued to track the euro lower, falling 0.3 percent to $1,552.81 an ounce.
GROWTH SLOWDOWN GLOBALLY
Data from the United States, China and Europe on Thursday underscored the damage the euro zone's fiscal plight has inflicted on growth globally.
U.S. jobless claims were little changed in the week ended on Saturday, while a key category of durable goods orders seen as a proxy for business spending declined.
Manufacturing activity in the euro zone in May shrank to its lowest reading since June 2009 and the guide to growth in Europe's powerhouse Germany also contracted in May, pointing to deteriorating growth ahead.
Slowing external conditions were reflected in China's HSBC Flash PMI, which fell in April for the seventh straight month of the index holding below 50, signalling that the economy would remain sluggish throughout the first half of the year.