Asian stocks are tumbling Tuesday, after U.S. financial stocks slid overnight, and following news of a massive writedown and capital raising by Merrill Lynch.

Among markets open early in the session, shares in Korea, Japan and Taiwan are particularly hard hit, while stocks in Australia are faring better, in part because of rising shares of mining companies amid gains in commodity prices.

Korea’s Kospi was recently down 2.9% to 1,550.86, while the Nikkei 225 in Japan is off 2.2% to 13,058.30 and Taiwan’s TAIEX index is off 3.1% to 7,006.26.

“A cautious mood ahead of earnings from major Japanese firms like Sony and Matsushita Electric Industrial may also keep investors from buying today,” said Yutaka Miura, senior technical analyst at Shinko Securities.

Australia’s S&P/ASX 200 is off 1.7% to 4,838.8, while New Zealand’s NZX 50 is down 0.4% to 3,242.74. Singapore’s Straits Times Index is down 1.5% at 2,865.99 shortly after the start of trade.

The stock selling in Asia follows a sharp fall in U.S. shares overnight. The Dow Jones Industrial Average dropped 239.61 points, or 2.1%, to 11,131.08.

Spooking investors overnight, shares of troubled mortgage giant Fannie Mae fell 11%, while counterpart Freddie Mac dropped 6.7% as the International Monetary Fund urged the U.S. government to review the companies’ business models.

Financial stocks were down across the board, however, with shares of Lehman Brothers off 10%, American International Group down 12%, and Citigroup off 7.5%.

After the close of trading in the U.S., Merrill Lynch said it will sell $8.5 billion in new shares to bolster its capital base - just two weeks after Chief Executive John Thain indicated that such a move wouldn’t be necessary. The capital raising comes as Merrill moves to book $10.6 billion in writedowns related to its collateralized debt obligation investments.

About $3.4 billion of Merrill’s fundraising will be purchased by Singapore’s state investment fund Temasek Holdings.

Merrill’s shares were up 1.9% in after hours trading, after a drop of 12% during the regular U.S. session.

Banks are again leading the declines across Asia, with Mizuho Financial Group down 3.5% in Japan, and Kookmin Bank down 2.3% in Korea, and Commonwealth Bank in Australia down 4%.

With crude oil halting a recent decline, Australia’s mining stocks are standouts. BHP Billiton and Rio Tinto were both recently up 0.4%, after rising more than 1% early in the session, while Woodside Petroleum was up 3.7%.

Crude oil was recently adding to overnight gains, with contracts for September delivery up 17 cents to $124.90 per barrel on Globex, after a gain of $1.47 overnight. Gold is tracking those gains higher, recently up $1.70 from the New York close at $931.80 per ounce.

The dollar has slipped against the yen, at Y107.35 recently compared with Y107.46 in late New York trade, but mostly flat against the Euro, at $1.5745 compared with 1.5741 in late New York.

Traders expect the dollar/yen to remain in a band of 106.50 to 108.50 ahead of the release of the monthly U.S. employment report on Friday.

Meanwhile, caution among stock traders has pushed government bonds higher, with Japan government bond futures up 0.50 to 136.38, and the 10-year cash bond yield down 3.5 basis points to 1.53%.

Source: http://www.djnewswires.com/eu

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