Asian shares slide after US debt outlook downgrade

HONG KONG: Asian shares tumbled Tuesday and traders looked for safe haven assets such as gold and the yen after Standard & Poor's downgraded its US sovereign debt outlook for the first time.

The ratings agency Monday challenged Washington's gold-star "AAA"-rated standard by lowering its outlook to "negative" from "stable", warning that politicians seemed unable to agree a plan to reduce the huge budget deficit.

The move sent stocks tumbling on Wall Street and across Europe. The losses continued in Asia.

Tokyo fell 1.21 percent, or 115.62 points, to 9,441.03 and Hong Kong was down 1.34 percent in the afternoon while Shanghai gave up 1.56 percent.

Seoul slipped 0.70 percent, or 15.04 points, to 2,122.68 while Sydney dropped 1.41 percent, or 68.6 points, to 4,793.3.

On Wall Street the Dow ended down 1.14 percent on Monday, while London's FTSE 100 lost 2.10 percent, the Paris CAC 40 was down 2.35 percent and in Frankfurt the DAX fell 2.11 percent.

S&P said it could not foresee any deal between Democrats and Republicans on cutting the fiscal deficit until after the November 2012 presidential and congressional polls, and that without one, the problem would only worsen.

The budget gap is expected to be almost 11 percent of gross domestic product by the end of the year.

"Because... the path to addressing these (problems) is not clear to us, we have revised our outlook on the long-term rating to negative from stable," S&P said.

With no action, S&P warned that within two years it could cut the US rating for the first time, which would send Washington's debt costs sharply higher.

Yutaka Miura, a senior technical analyst at Mizuho Securities told Dow Jones Newswires: "Although it will not lead to an immediate downgrade, the move was a negative surprise and Japan also needs to be cautious since it's a wake-up call on fiscal deficits."

The news sent the price of gold soaring to a record $1,497.23 an ounce on the London Bullion Market as dealers looked for safer bets at a time of economic unease.

In Hong Kong it fell back slightly to open at $1,494.00-$1,495.00.

The dollar tumbled further against the Japanese currency after the downgrade, hitting 82.43 yen, from 82.68 late in New York on Monday.

"Even though the US has the world's largest and most diversified economy as well as the world's reserve currency, she is also an enormous net borrower on the international capital markets," noted Capital Economics.

The US is "not a net lender like Japan who can draw on a huge pool of domestic savings to finance her government's yawning fiscal deficit."

The yen also rose to 117.25 against the euro from 117.68 while the European single currency dipped to $1.4225 from $1.4235.

European sovereign debt also weighed on the euro amid speculation that one of the 17-nation eurozone's most troubled economies will have to restructure its debt.

A German government official said Greece -- which was forced to ask for a bailout last year -- was unlikely to make it through the northern summer without asking for a debt restructuring.

On oil markets the S&P downgrade sent prices lower. New York's main contract, light sweet crude for delivery in May dipped 17 cents to $106.95 a barrel, while Brent North Sea crude for June eased one cent to $121.60.

Taipei finished 0.87 percent, or 75.93 points, lower at 8,638.55.

MediaTek Inc lost 3.44 percent to Tw$309.0 and Taiwan Semiconductor Manufacturing Co was 1.3 percent lower at Tw$68.1.

Manila closed 0.56 percent, or 23.98 points, lower at 4,245.21.

Philippine Long Distance Telephone fell 0.3 percent to 2,368 pesos, Leisure & Resorts World shed 4.0 percent to 10.58 and Metropolitan Bank & Trust lost 0.6 percent to 68.40.

Wellington fell 0.73 percent, or 25.19 points, to 3,439.98.

Fletcher Building lost 1.0 percent to NZ$9.05, Air New Zealand dipped 1.8 percent to NZ$1.10 and Telecom fell 0.5 percent to NZ$2.05.