Asia markets sink on caution over rally; Europe up

HONG KONG – Asian stock markets dropped Tuesday amid worries about the staying power of a three-month rally. European shares edged modestly higher in early trade.

Major Asian markets like Tokyo and Hong Kong shed around 1 percent, while the dollar slipped against the yen. Crude oil prices climbed over $69 a barrel.

Stocks worldwide have surged since March, pushing a number of markets upward 30 percent and more, on expectations that the deepest stretch of the global recession may be over.

But uncertainty about the strength of any recovery is now leading many investors to question whether the recent rally may have overvalued companies.

The threat of inflation, as governments spend hundreds of billions and cut interest rates to historic lows to prop up their economies, is also unsettling investors more and more. A downgrade of Ireland's debt rating overnight — the country's second this year — only added to fears about the unhealthy consequences of massive government bailouts.

"Investors are a bit cautious and happy to be taking some profits," said Miles Remington, head of Asian sales trading at BNP Paribas Securities in Hong Kong. "You're caught between a rise of such speed and tremendous gains versus other concerns. So in the short term there could be some downside."

As trading opened in Europe, Britain's FTSE 100 was up 0.1 percent, Germany's DAX gained 0.2 percent and France's CAC-40 advanced 0.2 percent. Wall Street futures pointed to a weak open in the U.S. Dow futures fell 11 points, or 0.1 percent, to 8,748 and S&P futures dropped 1.3, or 0.1 percent, to 937.50.

Asia fared worse, with Japan's Nikkei 225 stock average losing 78.81 points, or 0.8 percent, to 9,786.82.

Hong Kong's Hang Seng fell 1.1 percent to 18,058.49, and South Korea's Kospi was off 1.5 percent at 1,371.84.

Taiwan's market, which has surged nearly 50 percent from lows in March, slid 3.2 percent in the region's worst performance of the day. Australia's benchmark was also lower while Singapore recovered losses to be slightly higher. India's Sensex led the region's key indexes, adding almost 3 percent.

In mainland China, Shanghai's index rebounded from the red to close higher by 0.7 percent, helped by optimism that news due this week about the country's economy will show signs of improvement.

Figures about China's exports and imports, due Thursday, could yield clues about the health of the world's third-largest economy, as well as global appetite for Asian-made goods.

The region's economies have gotten clobbered by the collapse in demand from the U.S. and other Western countries, though the sharp decline may be slowing and even turning around in some countries.

Taiwanese exports, for example, dived 31 percent last month from the same period a year earlier — a slight improvement over April's abysmal 34 percent decline, new figures showed. And they've actually shown a steady increase recently by a different measure, growing almost 38 percent in the three months ending May from the prior three months.

Looking ahead, global investors will also be eyeing announcements in the U.S. about which of the country's biggest banks will be able to repay billions in federal bailout dollars — and free themselves of executive pay restrictions that come with the money. The government may issue that list as early as Tuesday.

Wall Street's session was largely directionless as investors wavered between concerns the rally is overheating and fears of missing any more upside.

The Dow closed mostly flat, up 1.36, or less than 0.1 percent, at 8,764.49. The Standard & Poor's 500 index slipped 0.95, or 0.1 percent, to 939.14.

In currencies, the dollar edged down to 98.17 yen from 98.39 yen. The euro fell to $1.3894 from $1.3927.





after giving birth at the Vancouver Aquarium. AP Photo/The Canadian Press, Darryl Dyck

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