Asian Shares Fall On Global Economy Worries

The news comes as U.S. auto makers face a Tuesday deadline to submit new restructuring plans to the U.S. government.

Asian stocks slumped on Monday as doubts intensified about the health of the global economy and other troubled areas, such as the financial and auto sectors, hitting beleaguered currencies such as the euro and sterling.

Data on Monday showed Japan's economy shrank in the last quarter at its fastest quarterly pace since the oil crisis in 1974, and in another sign of the deepening global crisis, Standard & Poor's warned it may cut credit ratings for Ukraine.

European shares were set to fall on Monday, with investors closely eyeing banks and automakers.

The G7 meeting of financial leaders over the weekend in Rome concluded with no public expressions of concern on either the Japanese or the British currency, leading the yen higher but sterling lower.

"Everyone is betting on a further rise in the yen, also because few believe governments can come up with new steps effective enough to turn around the global economy," Hideki Amikura, deputy general manager of forex trading at Nomura Trust and Banking in Japan.

The MSCI index of Asia-Pacific stocks outside Japan had dropped 2 percent as of 0720 GMT, while the Nikkei closed down 0.4 percent in choppy trade.

Among the big decliners were lenders such as HSBC in Hong Kong, and auto makers such as South Korea's Hyundai Motor and Japan's Toyota Motor.

Investors have yet to fully embrace equities, despite actions taken by governments worldwide, including the U.S. Congress approval on Friday of a $787 billion stimulus programme for the world's largest economy.

The global economic slowdown has been steeper than many had expected. Japan's weak data on Monday follows a report last week showing the euro zone economy saw its deepest contraction on record in the fourth quarter.

Global auto makers are now competing with banks for government attention. The U.S. administration has decided to launch a government task force for restructuring the U.S. auto industry, instead of naming a "car czar" with sweeping powers, reports on Monday said.

The news comes as U.S. auto makers face a Tuesday deadline to submit new restructuring plans to the U.S. government.

Among major Asian indexes, Indian shares were the worst hit with a 3.3 percent decline after an interim budget unveiled on Monday failed to live up to investor expectations.

Indexes in South Korea, Hong Kong, and Australia fell more than 1 percent each, with more modest losses seen elsewhere.

NOT ALL SUFFER

Not all asset classes are being hit.

Greater China equity funds saw the biggest capital inflows last week since late April 2008 while U.S. bond funds took in fresh money for a sixth straight week, Boston-based research firm EPFR Global said.

"The second week of February offered investors little to cheer about," EPFR said in a note. "But, as has been the case for the past three months, the latest flow data contained some bullish signals," citing new money in high-yield bond funds and outperforming U.S. equity funds centred on growth.

But the situation is more dire in other parts of the world, including in central and eastern Europe, which are facing steep capital outflows and an erosion in government finances.

A key gauge of the dollar rose to a two-month high against a basket of currencies, or up 1 percent at 86.871.

The euro fell nearly 1 percent to $1.2740, while sterling slid 0.8 percent to $1.4237.

The yen though rose against the dollar to 91.65 from 91.95 late on Friday.

Elsewhere, Japanese government bonds fell despite the weak economic growth data, on worries the government would implement bigger stimulus plans financed in part by the issuance of new debt.

March 10-year JGB futures fell 0.36 point to 139.00. Futures had touched 139.41 on Friday, the highest since late January. The benchmark 10-year yield climbed 3.5 basis points to 1.290 percent.

U.S. crude futures traded steady at $37.50 a barrel, while gold dipped slightly from late U.S. trading on Friday as investors booked profits on both following their recent gains