HONG KONG, China (Reuters) -- Stocks tumbled and government bonds rose on Friday, as investors dumped risky assets amid a global credit squeeze, while Asian central banks weighed in to calm jittery money markets or prop up their currencies.
A screen at the Australian Stock Exchange in Sydney shows a graph illustrating the drop in share prices Friday.
Asia's major stock markets fell as much as 4 percent and financial bookmakers were calling indexes in London, Frankfurt and Paris to open 1.6-2 percent weaker as fallout from the U.S. subprime lending woes spread.
The low-yielding yen rallied as investors unwound risky currency carry trades, and safe-haven bonds jumped. Yields on benchmark 10-year Japanese government bonds (JGBs) sank to a 2- month low, as expectations of an interest rate rise from the Bank of Japan this month faded in the market turmoil.
"Central banks are not supposed to be tightening credit when markets are in complete disarray," said John Richards, head of Asia-Pacific Strategy at RBS Securities.
"And this is close to a complete disarray."
The Bank of Japan and the Reserve Bank of Australia followed the European Central Bank and the U.S. Federal Reserve by pumping additional funds into markets amid a global rush to cash and other liquid assets.
Driving the latest ructions: news that France's biggest listed bank, BNP Paribas, had frozen $2.2 billion worth of funds on Thursday due to the U.S. subprime mortgage and warnings from two of the largest U.S. home mortgage providers that difficult market conditions were likely to hurt operations.
"The nervousness has been brought on by the perception that many more financial institutions may come out in the future to say they have been making losses on the back of the subprime problems," said Martin Arnold, equities economist at CommSec.
"People are starting to think that it's better to just stay away."
Traders said central banks in Malaysia, Indonesia and the Philippines intervened to sell dollars to support their currencies, which fell as appetite for risk slumped.
Commodities futures from Shanghai to Tokyo, including copper and precious metals, fell sharply on the global risk aversion.
"Two weeks ago commodities appeared fairly immune to some of the turmoil in other financial markets, but that is no longer the case," MF Global analyst Edward Meir said.
While some central banks intervened to support their currencies, others sought to prevent short-term interest rates from spiking.
The European Central Bank on Thursday injected a record $130.6 billion into the money markets amid a drying up of funds in Europe's interbank market.
Central banks in the U.S., Japan and Australia added more than usual amounts into their banking systems, while Singapore and South Korea said they stood ready to inject additional liquidity if needed.
Tokyo's Nikkei average ended down 2.4 percent at its lowest close since March 16 while Australia suffered its heaviest daily fall since the attacks on the United States in September 2001, ending down 3.7 percent.
South Korea's KOSPI finished 4.2 percent lower, while other major markets in the region such as Hong Kong and Singapore were down between 2 percent and 3 percent.
At the trough, the MSCI index was down nearly 10 percent from the July 24 record high -- its biggest fall since the 18 percent slide from May to early June last year.
Financial stocks were among the hardest hit with Australia's Macquarie Bank down 7 percent and South Korea's Shinhan Financial Group off 5.5 percent. Japanese exporters including Canon Inc. were further hammered by a jump in the yen as investors shunned risky low interest rate-funded trades.
Though off early highs, the Japanese currency was firmer against the dollar and euro as investors continued to pare their risk exposure funded by borrowing low yielding currencies such as the yen.
The high-yielding kiwi has fallen 10 percent against the yen in the past three weeks
The dollar fell about 0.10 percent to 118.06 heading towards a four-month low of 117.19 yen plumbed earlier this week.
The euro lost 0.24 percent against the Japanese unit from late U.S. levels to 161.32 yen not far off a three-month low of 160.47 yen touched last week. E-mail to a friend
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