Asian Market Update: RBA Governor Talks Up Remaining Policy Ammo, Talks Down US/UK Outlook; Bank of Japan Maintains Grim Outlook; Korea Shippers, Financials Fall to Trade Concerns as KRW Falls to 3-month Low; USD Gains Sharply on European, Commodity, Emerging Market FX

- After the prior session's ambivalence in US and Asian bourses, there was little doubt today that the bears regained control of the markets. Last hour selloff on Wall St that sent the Dow to a multi-year low close could effectively end the discussion of a rangebound search for a bottom. In turn, this technical breakdown ushers in more fear going into the weekend, particularly as talks of nationalization in financials grow louder yet again. Last hour rise in risk aversion for US markets echoed in the final session of the week in Asia, where major bourses traded at or near session lows ahead of close. Nikkei225 was down nearly 2% on the day, S&P/ASX closed off by 1.3%, and Kospi was down over 4% in the final hour.

- Australia's RBA Governor straddled both sides of the fence in his testimony before the House, commenting on weakness in current sentiment and poor near term outlook, but also remaining confident in the impact of the monetary and fiscal stimulative measures that require time to entrench a more protracted rebound. On the downside, he forecasted further moderation in inflation, reflected on visible reluctance in the corporate sector to borrow and invest, and also noted significant loss of household wealth translating into greater saving and reluctance to consume. On the flip side however, Governor Stevens cheered a healthier financial sector in Australia, a more effective impact of govt response, and generally more sound conditions than those in the US and UK, which he described as undergoing a "very nasty recession". In terms of policy, RBA head signalled that more ammunition was available if conditions warranted deeper rate cuts. Gov's upbeat sentiment was then echoed by his colleagues: RBA's Battellino said there was little reason for concern over Australia's sovereign ratings, while Treasurer Swan saw ongoing credit flow in the financial sector. Despite the policymaker optimism, Aussie shares traded predominantly lower. In notable names, Qantas Air fell 3.4% after Moody's rating cut to Baa2, Newcrest Mining fell 7.5% on selloff in gold prices, and refiner Caltex fell nearly 10% after seeing its FY profit fall 95%. Recently strong miners Rio Tinto and Fortescue pared their gains. while financials McQuarie and NAB traded lower on concerns of rising credit card defaults

- In Tokyo, investors saw more gloom from the BOJ Monthly Report just a day after the central bank further downgraded its outlook on the economy. The report noted further deterioration was expected to continue for a while as corporate profits fell at a faster pace and credit conditions remained tight.
New Finance Minister Yosano was likewise sober in his outlook, but pledged continued administration efforts to prevent an economic collapse. Among the biggest losers on the Nikkei, Bridgestone fell 6.5% after posting poor results in afterhours of the prior session, and Seven&I

gave up over 6% on reports of being investigated by Japans Fair Trade Commission for restricting discounts on premade meals. Elsewhere, an outlook cut on Sumitomo Electric at Moody's based on expectation of rapidly declining demand punished its shares by nearly 2%.

- Korea's markets traded with heavy tone yet again, with shipper and financial names leading the decline on trade contraction concerns and more currency volatility taking KRW to three-month lows. Samsung Heavy and Daewoo Shipbuilding fell 7% and 11% respectively, while Woori Finance declined over 5.5%. In geopolitical developments, Seoul welcomed US Sec of State Clinton, who warned that N Korea's recent belligerence was provocative and detracted from improvement in its relationship with the US.

- In currencies, regional risk aversion renewed European and Commodity majors', boosting the greenback across the board. EUR/USD fell as low as 1.2580, USD/CHF tested 1.18, and GBP/USD nearly reached 1.42. USD/CAD breached the upside of 1.26, AUD/USD declined to within 30 pips of 2-week lows at 0.6330, while NZD/USD was at lows not seen since Feb 3rd. Japanese Yen remained weak against the USD rally above 94.00, and EUR/JPY and GBP/JPY crosses were weaker on relative European majors slump. Emerging Asian currencies were also sharply sold - USD/KRW traded near November highs, while USD/SGD reached 1.5380 - levels not seen since Aug. of 2007.

- Crude oil is lower by more than 1% in Asian trade, after gaining by more than 12% during the NY floor trading session. The NY gains in crude prices came as the Department of Energy's weekly inventories report showed that crude stockpiles unexpectedly declined during the prior week, for the first time in 2009. Additionally, the DoE report showed that gasoline inventories unexpectedly rose, while distillates suppliers were higher than expected (DOE CRUDE: -138K V +3ME; GASOLINE: +1.1M V -500KE; DISTILLATES: -813K V -1.5ME). The March crude oil contract expires on Friday and a report in yesterday's WSJ noted that US Oil Fund ETF, had already moved out of the front-month March contract. In other oil related news, an unconfirmed source reported earlier today that most of OPEC's members are against output cuts at the upcoming meeting in March and this follows comments from the IEA's chief on 2/16, warning OPEC on further production cuts. In a related matter, the US Energy Secretary Steven Chu said that he did not know what the Obama administration would urge OPEC to do at its March meeting. Spot Gold is lower, as of the time of writing, after declining by more than $1 during the NY session. Today's gold declines have come despite the weakness in US and Asian financials. Some are noting profit-taking for the retreat in gold prices, as the metal has already moved to a 7-month high this week. In terms of gold demand the SPDR Gold Trust once again increased its holdings of bullion to a record level of 1,028 metric tons vs. 1,024 on 2/18.