HONG KONG, July 29: Asian stocks fell around 2 per cent on Tuesday, after Merrill Lynch, the third-largest US investment bank, announced a $5.7 billion write-down related to bad debt, draining confidence in the shaky financial sector.

Coming a day after one of Australia’s top banks said it would write down more than $1 billion in credit-related losses, Merrill’s news increased fears that a year-old financial crisis that has battered markets has further to run.

Worries that financial sector troubles will further undermine the global economy kept the US dollar trading below Monday’s one-month high against the yen.

Gold prices rose for a fourth day and Japanese government bonds climbed, pushing the benchmark 10-year yield down to the lowest level in three months.

Equity markets are capitulating on expectations of a deepening of the global banking crisis. Asian and emerging markets are experiencing capitulation due to risk aversion, Sean Darby, chief Asia strategist at Nomura in Hong Kong, said in a note to clients.

Japan’s Nikkei share average finished 1.5 per cent lower, weighed by shares of high-profile exporters such as Honda Motor Co and Canon Inc, as investors continue to punish companies dependent on overseas demand.

After the market closed, Nomura Holdings Inc, Japan’s largest brokerage, posted a surprise quarterly net loss, hurt by credit-related losses and a dearth of new share offerings.

Shares in the rest of the Asia-Pacific region fell 2.1 per cent, according to an MSCI index The index last week briefly broke above a downward trend that stretched back to May 19, but has since fallen for three consecutive days.

Hong Kong’s Hang Seng ended down 1.9 per cent, while Taiwan’s TAIEX index shed 3 per cent. Singapore’s benchmark closed 0.8 per cent lower.

South Korea’s KOSPI dropped 2 per cent, led by Samsung Electronics Co Ltd and LG Electronics Inc, consumer-oriented companies which last week issued grim views of the global economy.

Australia’s benchmark S&P/ASX 200 slid 1.5 per cent, with shares in Commonwealth Bank of Australia and National Australia Bank both down around 4 per cent.

In India the 30-share BSE index closed down 3.9 per cent, led by financials, after the central bank tightened policy more aggressively than had been expected in a bid to quash double-digit inflation.

Merrill Lynch said it will take a $5.7 billion third-quarter write-down as it unloads huge amounts of risky debt, and will raise $8.5 billion by selling new stock, a move that could dilute the value of existing shares.

The Wall Street investment bank and brokerage announced its plans less than two weeks after posting a $4.9 billion second-quarter loss, hurt by more than $9 billion of write-downs.

Worries about what’s coming out of the woodwork next is going to see investors take a bit of time to feel more comfortable about the financial sector, said Tony Russell, senior equities adviser at ABN AMRO Morgans in Australia.

There will be a lot of nervousness and second guessing. The benchmark 10-year Japanese government bond yield fell 2.5 basis points to 1.540 per cent after earlier hitting its lowest since late April at 1.525 per cent.

Corporate credit investors in Asia also began to price in a slightly higher chance of default as equity markets weaken and turmoil in the global financial sector persists.

In addition, Asian companies announcing their results include Mizuho Financial Group and TSMC, the world’s biggest contract chip maker.—Reuters