Asia markets drop on U.S. jitters

HONG KONG, China (Reuters) -- Jitters about a global credit squeeze hit Asian stock markets again on Monday with financial shares such as Macquarie Bank bearing the brunt of the selloff, while fresh fears about the U.S. economy hit the dollar.

Heightened concerns for economic growth knocked oil prices, which briefly dipped below $74.50, and dragged Shanghai copper futures down 3 percent, but flight to safety helped gold stay near one-week highs and held the benchmark U.S. 10-year Treasury yield near 2- month lows.

Data last Friday showing U.S. employers added jobs at the slowest rate in five months and weaker growth in the U.S. service sector all added to concerns about the world's biggest economy, Asia's top export destination.

Bear Stearns further rattled investors after saying credit markets were in their worst shape in two decades and after ratings agency Standard & Poor's warned mortgage credit problems could hurt the investment bank's profits.

"People must accept that the market is headed towards a period of correction, and that it's going to take some time before we see a pickup," said Lim Chang-gue, a fund manager at Samsung Investment Trust Management in Seoul.

"A credit crunch is spreading fast, and once started, it won't be easy to reverse," he added.

Tokyo's Nikkei average closed down 0.4 percent, while South Korea's KOSPI and Australia's S&P/ASX 200 index both ended more than 1 percent lower.

Other major markets across the region fell between 1 percent and 4 percent in afternoon trade.

"Stocks here will likely continue falling unless the New York market regains composure," said Katsuhiko Kodama, senior strategist at Toyo Securities in Japan.

Investors sold financial issues including Mitsubishi UFJ and Australia's Macquarie Bank as well as exporters such as Canon Inc., Sony and Hyundai Motor

Samsung Electronics shed 1.0 percent, in line with the fall in the wider market, after it kept its monthly chip production targets unchanged despite a power outage on Friday that hit six semiconductor production lines.

But investors bought Toyota Motor, sending its shares up 1.4 percent after the world's top automaker reported a better-than-expected 32 percent rise in quarterly operating profit on Friday.

MSCI's measure of Asia Pacific stocks excluding Japan shed 2.2 percent by 0616 GMT after earlier plumbing a fresh one-month low.

At the session trough, it was down 9.8 percent from the record high set on July 24, its biggest pullback since the 18.4 percent drop from May to early June last year.

Among the region's top decliners, Singapore's Straits Times Index dropped 3.2 percent to 3- month lows while Jakarta Composite Index slid 4 percent to one-month lows.

But China's mainland stocks rose, pushing the Shanghai Composite Index to a new life high, again showing that the market, which is effectively closed to overseas investors, runs on its own steam.

In the foreign exchange markets, investors sold the dollar amid worries about the U.S. economy while credit worries prompted an unwinding of risky carry trades.

A carry trade involves selling the low-yielding currency, often the yen, to buy higher-yielding assets.

"Due to the credit-related issues, there are still some moves toward risk reduction," said Tomoko Fujii, head of economic and strategy for Bank of America in Tokyo.

The dollar fell as low as 117.19 yen on electronic platform EBS, its lowest since late March, before regaining some ground to be at 117.62 yen.

Weakness in the Nikkei coupled with strength in U.S. Treasuries helped prop up Japanese government bond prices, pushing yields sharply lower.

The benchmark 10-year yield dropped as much as 5 basis points to 1.730 percent, its lowest level since late May, before settling at 1.75 percent, down 3 ticks. E-mail to a friend

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