Asian Market Update: China Trade Balance Grows on Record Import Drop as Exports Fall Sharply Again; Taiwan Outperforms in M&A Rumors; Aussie Home Loans Top Expectations while Rio Tinto Rallies on Further Asset Sales Talk; USD, JPY Consolidate Gains After Massive Risk Aversion

- The rout on Wall Street, stemming from overwhelming disappointment over Treasury's Geithner's announcement of the perceivably short on detail Financial Stability Plan, was just as destabilizing to Asian bourses in early session. However, panic selling appeared to subside late in the trading day. In Australia, S&P/ASX traded down early to session lows of -2.2% before closing down just 0.4%, while Korea's Kospi bottomed early at -2.5%, closing off by only 0.8%. Japan's markets were closed in observance of National Foundation Day. Notably, Taiex was the single regional gainer after the Taiwan's Economic official Chen confirmed merger talks with Japan's chipmaker Elpida. The struggling company was said to target consolidation with the island's chip players Powerchip and ProMos. Demand weakness in the sector was underscored by a large earnings miss at US industry leader Applied Materials, encouraging speculation of increased regional cooperation. Taiex finished the day on a strong note, gaining 1.1% for the session.

- January trade balance strength from China, coming in at $39.11B v $29Be, was again deceptively misleading, with the drop in imports severely outpacing an equally discouraging decline in exports.
On a y/y basis, imports collapsed by a record 43%, while exports fell by 17.5% - the most in nearly 13 years - representing the third consecutive month of contraction on both columns of the trade data. In consolation, the severity of the decline was partially attributed to the timing of the Lunar New Year festival that fell entirely on January after taking up a week of February in the prior year.

- In Sydney, investors have once again bid up the shares of Rio Tinto as interest in company assets escalated yet again. Aussie media reported that BHP, along with Mitsui, was once again considering acquiring a portion of Rio, namely its iron ore and coking coal assets. Also the company was said to be in talks with power companies in Japan regarding the sale of its 68% stake in Energy Resources, while Chinalco investment was also rumored to approach as much as $20B. Rio Tinto finished the day at session high, up 6% and trading at levels not seen since late November. By contrast, BHP was traded lower, trading down nearly 4% late in the day. In other notable Aussie names, Alumina shrugged being placed on rating watch negative at S&P, while Commonwealth Bank fell 2% after forecasting deterioration in conditions for H2 that may prevent it from passing on future RBA rate cuts. Leading gold producer Newcrest was up 0.4% as gold prices bounced on risk aversion, while Woodside Petroleum sold down 0.8% tracking weakness in energy. Aussie economic data was mixed, but some strength in equities was attributed to the surprisingly strong housing figures.
December home loans growth came in at multi-year highs of 6.4% v 3.5%e and investment lending grew 2.9% v 1.0%e, suggesting that central bank easing was translating into more housing related borrowing. February Westpac Consumer Confidence fell to a four-month low however, coming in down 4.6%.

- In notable Korea shares, Posco fell 3.5% after the company spokesman forecasted a "challenging" quarter in the prior session. Also, tech chip leader Samsung tracked the after-hours weakness in AMAT, declining 0.7%. Automakers Hyundai shrugged a Morgan Stanley downgrade to equalweight with a 0.7% rally, while the smaller Ssangyong opened down 15% after being halted for a month following bankruptcy protection placement. Korea's economic data was also fairly resilient, as January unemployment came in below estimates of 3.5% at 3.3%, and Korea's Customs Service Agency reported a 17% y/y increase in exports for the first 10 days of February.

- Among central bankers speaking in the Asian hours, SNB's Roth called for a broader regional policy mandate than price stability, while ECB's historically dovish Quaden also looked to assuage market concern that Europe is behind the curve, expressing "absolute" willingness to cut rates below 2%.
Calling Q4 economic activity "catastrophic", Quaden also noted that the current crisis is "not a depression, but a serious recession". Across the pond, Mexico's Central Bank Governor reiterated that Peso supporting interventions will continue amid further emerging FX volatility, also anticipating inflation in coming months to remain in line with estimates. Over in Asia, Sri Lanka unexpectedly cut its rates by 25bps to 10.25% in light of "rapidly decelerating" inflation that was expected to continue declining.

- In currencies, European and commodity majors tracked the initial equity market weakness and the subsequent recovery. EUR/USD fell to 1.2850 before taking out 1.2930 on the upside, USD/CHF met selling interest at intraday resistance of 1.1620 en route to 1.1520, while GBP/USD bucked the recovery trend with further late-session selling to 1.44. AUD/USD traded rangebound 0.6520-0.66, NZD/USD downside was contained at 0.5220, and USD/CAD consolidated US-session gains in 1.2410-2450 territory. Japanese Yen buying interest briefly subsided, before reemerging in late Asian hours. USD/JPY traded below 90.00 for the first time in nearly a week, EUR/JPY breached 116, and GBP/JPY fell below 130 on added Sterling-bearing momentum that helped push EUR/GBP to near-90.00. USD/SGD extended prior session's rally to 1.5110 - resistance last seen on Feb 4th.

- Crude oil is higher in Asian trading. During the NY session oil closed lower by more than 4% as US equities declined following the announcement of the Treasury's financial system rescue plan. In oil market news, the Saudi Arabian oil minister said that high prices (for oil) are just as unjustified as low prices, while noting that the country's revenues from oil sales are insufficient to balance the national budget for 2009. Additionally, the head of the IEA Tanaka noted that he currently sees a floor for energy prices and that prices could spike when demand returns. In terms of oil demand, China's Jan crude oil imports declined by 8% y/y. Looking ahead, the US Department of Energy's oil inventories report for the prior week will be released. According to 1 survey, oil supplies rose by 2.75M barrels, gasoline stocks rose by 500K barrels and distillate supplies fell by 1.5M barrels.
Earlier today, the API survey showed that crude and gasoline supplies were lower than expected, while distillate inventories exceeded expectations (API PETROLEUM INVENTORIES: CRUDE: -1.99M V +2.6ME; GASOLINE: -2.92M V +500KE; DISTILLATE: +850K V -1.7ME). Spot Gold is slightly weaker in Asia, after gaining more than $20 during the NY session. The US session gain in gold prices was the largest in more than 2 weeks and came as the US announced its financial rescue plan. In terms of gold demand, the SPDR Gold Trust ETF's holdings of the metal rose to another record of 894.7 metric tons vs. 881.9 on Feb 9.