Asia stocks drop as financial crisis worsens

By Kevin Plumberg

HONG KONG (Reuters) - Asian stocks tumbled on Tuesday, after Merrill Lynch, the third-largest U.S. investment bank, said it would take a $5.7 billion (2.86 billion pound) write down related to bad debt, draining confidence in the unstable 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, the news heightening fears that a year-old financial crises that knocked global stocks into bear market has further to run.

Worries that financial sector troubles will further undermine the global economy kept the dollar below Monday's one-month high versus the yen. Gold prices rose for a fourth day and Japanese government bonds surged, pushing the benchmark 10-year yield down to the lowest 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 with Nomura in Hong Kong, said in a note to clients.

Japan's Nikkei share average .N225 fell 2 percent, weighed by shares of high-profile exporters like Honda (7267.T) and Canon (7751.T) as investors continue to punish companies dependent on overseas demand.

Shares in the rest of the Asia-Pacific region also dropped 2 percent, according to an MSCI index .MIAPJ0000PUS. The index last week briefly broke above a downward trendline that stretched back to May 19, but has since fallen for three consecutive days.

South Korea's KOSPI dropped 2.9 percent, led by the Samsung Electronics (005930.KS) and LG Electronics (066570.KS), consumer-oriented companies who last week issued rather grim views of the global economy.

Australia's benchmark S&P/ASX 200 .AXJO slid 1.6 percent, with shares in Commonwealth Bank of Australia (CBA.AX) and National Australia Bank (NAB.AX) down more than 3 percent, while Westpac Banking (WBC.AX) slipped 2.5 percent.