Asian shares tumbled and the yen rocketed to a seven-week high against the dollar on Monday, driven by fears of a continued flight from emerging markets as tighter credit conditions in China threatened to put the brakes on the world's second-biggest economy.
Japan's Nikkei share average gave up the 15,000-level and dropped 2.5% to a two-month low, while MSCI's broadest index of Asia-Pacific shares outside Japan slipped 0.5 percent in early trade after losing more than 1.0% on Friday.
"The major theme of the day has to be emerging markets, with the most obvious issue to come to grips being whether what's going on is becoming more generalised, or is still country and issue specific," ANZ bank economists said in a note to clients.
Expectations of continued stimulus withdrawal by the U.S. Federal Reserve added to the market's gloom. Fed officials are seen cutting bond-buying by another $10 billion at their regular two-day policy meeting beginning on Tuesday.
Tightening credit conditions in China meanwhile has investors worried about more headwinds for global markets. Beijing is seeking to curb growth in high-risk lending, heightened fears about a possible slowdown in Asia's economic powerhouse.
The dollar slipped as low as 101.77 yen early on Monday, its weakest level since December. 6, and was last trading at 102.24 yen, down about 0.1%. The yen's session high marked a strengthening of more than 2 yen over the past three sessions, as Japanese stocks withered in line with their global counterparts.
The euro also fell to a seven-week low of 139.25 yen but steadied on the day and last bought 140.03 yen. "The combination of the drop in U.S. and Japanese equities, and the sharp decline in U.S. bond yields helped accelerate the short squeeze, which was already helping the yen recover," strategists at Brown Brothers Harriman said in a note to clients.
"Renewed yen weakness would seem to require a move back up in U.S. yields and/or recovery in the equity markets," they added. On Wall Street on Friday, all three major stock indexes dropped for a second consecutive session, with the Standard & Poor's 500 index shedding 2.0%.
The yield on benchmark 10-year Treasuries notes fell as low as 2.706% on Friday, its lowest intraday level since November. 26. It stood at 2.718% in early Asian trade. Argentina, meanwhile, abandoned support of its peso on the open market last week, sending the currency skidding to its biggest drop since the 2002 financial crisis.
Latin American stocks tumbled to a 4-1/2-year low on Friday. Spot gold was seen sticking close to last week's lofty levels, after hitting a two-month high on Friday and marking its fifth consecutive weekly gain