Hong Kong market down 6 pct; China 5 pct and Japan down 4 pct in Tuesday trading

THE ASSOCIATED PRESS
TOKYO - Markets in Hong Kong, China and Japan fell by as much as six per cent in early trading Tuesday, in the second day of sharp global declines triggered by fears the U.S. is sliding into a recession.

In Hong Kong, the benchmark Hang Seng Index fell as much as 6.1 per cent within minutes of opening, but then regained some ground. It was down 1,265.36 points, or 5.31 per cent, at 22,553.5 by midmorning. China's main stock index, the Shanghai Composite Index, fell more than five per cent in early trade Tuesday to 4,644.95.

That follows a 5.1 per cent fall in the Shanghai Composite Index Monday - the biggest percentage drop since July 5, when it fell 5.3 per cent.

The drops in Hong Kong and China are alongside a second-day plunge in Japan's benchmark stock index, which shed more than four per cent in early trade Tuesday.

The benchmark Nikkei index lost 587.63 points, or 4.41 per cent, to 12,738.31 points on the Tokyo Stock Exchange at the end of the morning session. The index lost 3.9 per cent to close at 13,325.94 points Monday.

"Unless we get some positive 'shock effects,' such as drastic measures from the U.S. government, there is almost no hope for a recovery in stocks," said Koji Takeuchi, senior economist at Mizuho Research Institute in Tokyo.

Takeuchi said investors feel that the selloff is spreading worldwide, setting off fears of a global downturn. Risks of economic contraction have been growing in Japan as both exports and consumer spending are weakening, he said.

Kirby Daley, strategist at Newedge Group, said the Nikkei could shed another 10 per cent to 15 per cent to the 11,000 level in the next few months. Japanese companies depend on exports and capital investments to keep up profits, and both are endangered if there is a U.S. slowdown, he said.

"The argument that valuations are cheap for Japanese stocks is flawed," Daley said. "The basis for those earnings valuations doesn't consider ongoing problems in the U.S. economy, which are likely to get worse."

Even usually upbeat Japanese Economy Minister Hiroko Ota acknowledged that downsides risks are growing, given the volatile markets and surging oil prices.

"The economy keeps recovering as recent production data show, but downside risks are growing these days," Ota told reporters.

U.S. markets were closed Monday for a holiday commemorating civil rights leader Martin Luther King Jr. But Wall Street future prices were down sharply, portending a plunge when trading begins at 9:30 a.m. Eastern time.

Dow Jones industrial average futures were down 436 points, or 3.6 per cent, at 11,670, while Standard & Poor's 500 futures were down 57.1 points, or 4.3 per cent, at 1,268.

© The Canadian Press, 2008