Asian Markets Close Lower on Merrill Report

Most of the major Asian indexes closed in the red Wednesday on reports that Merrill Lynch is expected to announce bigger-than-expected third-quarter losses. Japan, South Korea and Australia all closed lower. All three indexes fell sharply midway through the session after spending most of the morning in positive territory.

Merrill is due to report its third-quarter earnings later during the U.S. session Wednesday. Both The Wall Street Journal and the New York Times reported that Merrill write-downs, based mainly on over-exposure to risky mortgage-related securities, are expected to come in far above the company's initial estimate of $5 billion, with outsiders putting the level at $7 billion or higher. Even at $5 billion, this would have been the largest subprime-related hit disclosed to date by any Wall Street firm.

The Nikkei 225 Average finished down but off earlier lows on Wednesday, hit by a late selling rush after that Merrill Lynch report. A stronger yen and weakness in U.S. semiconductor shares after a disappointing earnings forecast by Texas Instruments earlier this week also dragged Tokyo shares down, with Tokyo Electron sinking to a nearly two-year low.

South Korea's KOSPI ended in the red, also hit by the Merrill report. Trading house LG International tumbled 13.25 percent after reporting late Tuesday a 40.7 percent drop in third-quarter net profit, while plasma maker
Samsung SDI fell on expectations of lukewarm profit momentum.

Australia's S&P/ASX 200 Index reversed course late in the session to close down 0.4 percent, as banking stocks sank on the Merrill report.

Hong Kong blue chips were slightly lower, despite Industrial & Commercial Bank of China reaching a record high, a day before the country's top lender is due to post its quarterly earnings. Shipping plays also surged to records in heavy trade, aided by an all-time high in the Baltic Dry Index, an indicator for commodity-freight rates.

Singapore's Straits Times Index swung into positive territory, despite weakness in banking shares such as DBS Group and UOB as investors unloaded positions ahead of third-quarter earnings announcements starting this week.

China's Shanghai Composite Index closed 1.2 percent higher, led by financial and property shares because of strength in the yuan, which rose to a new post-revaluation record against the dollar. However, turnover remained extremely low and most stocks actually fell,
showing many investors remained cautious about high valuations and tightening monetary policy.