Asia stocks sink as recession fears overwhelm

By Kevin Plumberg

HONG KONG (Reuters) - Asian stocks dropped nearly 7 percent and commodity-related currencies tumbled on Thursday as more evidence the U.S. economy is shrinking made investors brace for a potentially deep and lasting global recession.

After toying for several days with raising their threshold for risk by buying beaten-down shares, investors were overwhelmed by fears that far-reaching consequences from such a sharp slowdown in developed economies were still unfolding.

Wall Street institution Goldman Sachs Group Inc, which had early in the financial crisis profited on bets against the U.S. mortgage market, reportedly laid off 3,200 employees this week, and the Bank of England and the European Central Bank were expected to cut interest rates aggressively to shore up their economies.

A growing group of economists even think the Bank of England later on Thursday could lop off a full percentage point from borrowing costs in answer to critics who said the central bank had not done enough to save Britain from the worst financial shock in a generation.

"Supportive policies, valuations and positions are not enough to bring about a sustained rebound in riskier markets, as has been clear over the past year," said Jan Loeys, head of global asset allocation with JPMorgan in London said in a note.

"At best, we have seen bear market rallies that were soon overwhelmed by the reality of worsening economic conditions."

The MSCI index of Asia-Pacific stocks excluding Japan fell 6.9 percent after hitting a 3-week intraday high on Wednesday. The gauge has lost 53.5 percent so far this year, exceeding the 40.7 percent decline on the All-Country World index.

Japan's Nikkei share average slumped 5.4 percent, led by high-profile exporters like Canon and Honda that are expected to be affected the most by a steep drop in overseas demand as consumers cut back spending.