Asian Markets Tumble on Credit Fears, Japan, China Hit Hard

Asian stocks took a beating Thursday, after Wall Street closed at a three-month low, sparking fears of a pullback in export demand with oil prices remaining high and feeding a rally in safe-haven government bond prices. Japan shed 2.2 percent while Australia gave up 1.4 percent.

The U.S. dollar was down for a fourth straight day against major currencies as expectations for higher interest rates from the Federal Reserve continue to be doused by evidence the U.S. economy may not have hit bottom yet.

Crude oil rose $2.67 a barrel to settle at $136.68 a barrel in the New York session Wednesday after the EIA reported that crude inventories shrunk by 1.2 million barrels last week, less than the 1.5 billion draw expected. Oil is currently trading at the $135 level in the Asian session.

Tokyo's Nikkei 225 Average closed down 2.2 percent led lower by exporters such as Honda Motor on a firmer yen and worries about a weak U.S. economy, a major destination for world exports. Toyota Motor slid after the automaker said it was cutting U.S. production of its full-size pickup trucks further this year as record gasoline prices have depressed sales of gas-hungry trucks and SUVs.

Seoul shares dropped 1.8 percent led by exporters such as LG Electronics on mounting worries that a U.S. economic slowdown and rising inflation pressure will dent South Korean firms'

Australian shares finished 1.4 percent lower, led down by banks on concerns about the health of global financial institutions, with infrastructure firms falling on worries they may cut distributions. Qantas Airways lost 3 percent, hitting its lowest levels since August 2006, as it faced a week of strikes by engineers starting next Monday and in the face of high oil prices.

Hong Kong shares fell 2.3 percent as the previous day's rally fizzled on a lack of market-boosting measures from Beijing, but retailer Esprit bucked the broad market trend to jump 4 percent. Shares in the apparel and accessories retailer jumped after rival Hennes & Mauritz posted forecast-beating second-quarter earnings that suggested strong demand despite lukewarm growth in European economies. Aluminum Corp of China, which has given up more than 16 percent this month, slid 5.5 percent as analysts warned of lower profits on increased production costs of alumina.

Singapore's Straits Times Index was down 1.6 percent with financials such as DBS Group and Overseas Chinese Bank leading the declines.

China's Shanghai Composite Index tumbled more than 6.5 percent, as hoped-for government intervention to support the market, which had boosted shares sharply on Wednesday, failed to materialize. The index had jumped 5.24 percent the previous session, in part because of rumors that the government might take steps to lift stocks from near 15-month lows, such as creating a stabilization fund for the market. But official media today gave no hint of government action, and analysts believe strong intervention -- especially measures such as creating a stabilization fund, which could be inflationary -- remains unlikely.