Asia stocks sink

HONG KONG, China (Reuters) -- Asian stocks extended their decline on Thursday with Japan's Nikkei reaching 8-month lows, while the yen pushed higher as investors continued to dump risky assets amid growing fears about a global credit squeeze.

In the latest scare, investors worry that Countrywide Financial, the largest U.S. mortgage lender, could face bankruptcy if liquidity worsens after a Merrill Lynch analyst flagged that possibility.

"The fear is that this problem that originated in the subprime is like a growing cancer. The uncertainty of not knowing where the next problem is going to emerge is just too much for investors to handle," said Craig Hester, chief executive officer of Hester Capital Management, in Austin, Texas.

At 0044 GMT, Tokyo's Nikkei average had fallen 1.7 percent to levels last seen in late November, while MSCI's measure of Asia Pacific stocks excluding Japan fell 1.6 percent to new three-month lows.

The MSCI index is down about 14 percent from the July 24 record high but still up nearly 10 percent this year.

South Korea's KOSPI was hit hard, skidding 5 percent as the market played catch-up to the region's tumble after a holiday on Wednesday.

The selloff in financial stocks continued, pushing South Korea's top lender Kookmin Bank down 4.4 percent and Japan's Mitsubishi UFJ down 3.7 percent. Australia's Macquarie Bank slipped 1 percent.

Worries that the credit problems will hurt global economic growth also weighed on exporters such as Samsung Electronics and mining giant BHP Billiton

"Although the market has entered a level where it might have bottomed out, it hasn't because the problem now is sentiment rather than valuations," said Kazuhiro Takahashi, general manager of the equity marketing department at Daiwa Securities SMBC.

Japanese exporters including Honda Motor and Canon Inc. were further pressured by a stronger yen, which can hurt the value of overseas sales.

Heightened risk aversion propelled the yen to a near five-month high against the dollar and euro, as investors who had borrowed the low-interest rate currency to buy riskier but higher yielding assets continued to unwind their positions.

The dollar slipped towards 116.20 yen a level last seen in mid-March, while the euro came close to testing 156 yen.

"From a technical point of view, the market has moved so much already. But there is no prospect of a reversal of current moves given that credit jitters are still spooking markets," said Hideki Amikura, a forex manager at Nomura Trust and Banking.

Growing doubts that the Bank of Japan will lift interest rates any time soon amid the market turmoil helped shore up Japanese government bonds.

The 10-year futures hit a five-month high, while the 10-year cash yield briefly dipped to a near three-month low of 1.63 percent. E-mail to a friend

Copyright 2007 Reuters. All rights reserved.This material may not be published, broadcast, rewritten, or redistributed.

All About Asia-Pacific Markets