Asian Markets Swing into Black, Banks Still a Concern

Asian markets climbed into positive territory while the U.S. dollar rose to a three-year high against a basket of currencies Wednesday, after Federal Reserve Chairman Ben Bernanke gave a grim view on the financial sector.

Days after American International Group posted the largest U.S. corporate loss ever and received a $30 billion government bailout -- its second rescue -- Bernanke left open the possibility that even more money may be needed to stabilize the banking system, 19 months after the financial crisis broke out globally.

The only market to fall was Australia. Shares dropped to the lowest since August 2003 after a report showed gross domestic product unexpectedly shrank in the fourth quarter for the first time in eight years, as the steep slowdown in global demand tore through Asian economies.

The Australian dollar fell 1 percent on the day, after data showed the domestic economy shrank by 0.5 percent on a quarterly basis in the last three months of 2008, putting the country on the brink of recession. Upward pressure on the U.S. dollar pushed down the euro to a three-month low. Crude oil prices gained almost 4 percent to trade above $41 a barrel, on expectations of further output cuts from OPEC.

Australian stocks closed down 1.6 percent to their lowest close since August 2003, after a surprise decline in fourth-quarter gross domestic product raised concerns on the outlook for company earnings. Australia's economy shrank for the first time in eight years in the last quarter even after the government handed out money to families and pensioners in a bid to boost spending. Banks weighed on the Australian market, falling further amid investor concern about lenders' ability to perform through the global financial meltdown. Commonwealth Bank of Australia fell 3.6 percent and Australia and New Zealand Banking Group lost 3.9 percent.

The Nikkei 225 Average finished 0.85 percent higher, erasing earlier losses as news that China will increase stimulus spending buoyed Hitachi Construction and other machinery stocks.

South Korea's KOSPI reversed earlier losses to end up 3.3 percent on hopes for additional stimulus plans from China, with gains led by steel and shipbuilding issues including POSCO and Daewoo Shipbuilding.

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Hong Kong shares rose 2.5 percent, after opening lower, as Chinese industrials, banks and property counters climbed on encouraging economic data and the promise of bigger stimulus spending. But HSBC continued to weigh on the main index, dropping 4.4 percent. The stock hit its lowest level since the Asian financial crisis of 1997-98, a 40 percent plunge since the beginning of the year.

Singapore's Straits Times Index was rose 1 percent. SIA Engineering slipped after DBS Group downgraded its recommendation on the firm to "hold" from "buy" and cut the target price due to a slower demand outlook for the airline industry.

China's Shanghai Composite Index surged 6.1 percent, led by property, coal and non-ferrous metal shares, on encouraging economic data and a pledge by the government to increase its stimulus spending. China will increase spending in areas such as infrastructure and manufacturing on top of the 4 trillion yuan stimulus package that it unveiled in November, a senior economic planning official said on Wednesday.