Asian Market Update: S&P, BOJ's Noda Sees More Gloom for Japan; Korean Officials Downplay March Crisis Threat as KRW Sinks; Australian CAPEX Unexpectedly Rises, Boosting AUD; Singapore GDP Revision, Industrial Production Disappoint; USD Consolidates Gains

- Late session rally that lifted US equities from early housing data and Obama address inspired doldrums initially carried over to Asia in early trading. However, the gains were subsequently extinguished, as optimism heeded downbeat sentiment from local officials and central bankers. In Tokyo, BOJ's Noda forecasted economic conditions becoming more severe as businesses continued to struggle with persistent lending reluctance by local banks. He also defended his standout position against corporate bond purchasing, stating that it would not necessarily improve conditions but could distort market funding demands. In turn, an S&P report assessed current recession in Japan as the worst since WWII, anticipating a 4.0% GDP contraction for 2009 and another double-digit q/q decline, exacerbated by pull-back from an already relatively low real demand levels and ineffective/delayed government response.

- Nikkei225 finished the day around unchanged levels, well off its midday highs. In share-specific developments, Advantest stood out as one of Tokyo's biggest losers, dropping by over 10% after cutting its full-year guidance and slashing nearly a third of its workforce. In other notable decliners, Daiichi Sankyo sold off by over 7% on another India scandal when its subsidiary Ranbaxy was accused of falsifying product shelf life, and Aeon shed 2% following a rating cut by Moody's on concerns over deteriorating consumer spending in Japan. Nissan was one of Nikkei's prominent gainers after forecasting an increase in output for March, even as Toyota was rumored to cut its 2009 production estimates further to 6M cars from 6.5M. Nippon Steel reinforced Nissan assessment suggesting the production cuts in autos have been overextended, picking up over 3%. Asahi Glass was also firmer by 6% on reports of partnering with Sematch to improve design productivity of its output.

- Korea's Kospi fared the worst out of major Asian bourses, ending the day down 1.2% in sharp retreat from early session gains. Fragility and foreign loan dependence in the banking system ahead of the approaching fiscal year-end in Japan are keeping investors weary, even as Korea's officials and central bankers remind the markets that "currency crisis" fears are overblown. Tokyo banks are not yet rumored to cut or withdraw lending to South Korea, even as its credit-worthiness will come under the spotlight further in weeks to come. In notable Kospi names, Kia turned its earlier 3.5% rally into an 8% loss after considering a bond issue, while Daewoo Engineering was modestly stronger after picking up a KRW274.4B order from a Malaysia client.

- Elsewhere in Asia, Singapore posted a downward revision to its y/y 2008 GDP to -4.2% and also cut its 2009 estimate to -4.8%. Singapore's industrial production figures also disappointed, coming in at -4.4% m/m and -29.1% y/y levels vs estimates of -3.4% and -24.3%. In Hong Kong, Financial Secretary Tsang's prior session testimony revealed that he was unable to estimate a bottom for the economy.

- Sydney's S&P/ASX halved its 1.2% early rally to end the day as one of the few regional gainers amid ongoing strong economic data. After beating wage inflation estimates in the prior session, Q4 private CAPEX came in at the highest levels since Q2 of 2007 at +6.0% V -3.0%E. Sending AUD and ASX higher in the immediate aftermath of the release. Australia's Treasurer downplayed future expectations, stating that business investment was still expected to decline going forward as many companies remained under credit and demand pressure. Toll Holdings reported strong first half earnings, sending its shares up over 10%. Meanwhile, Fortescue Metals resumed trading to the downside after a 2-day halt following its search for funding and partnership opportunities. In financials, Westfied was up nearly 5% after reaffirming earnings forecast, while MacQuarie dropped nearly 10% amid ongoing talks regarding restructuring, prompting company officials to say that they do not foresee a capital raise.

- In foreign exchange, the dollar consolidated the gains it made against the locally inspired selloff in European majors. EUR/USD traded around 1.27, 200 pips off prior session peak, GBP/USD traded just above 1.42 after sliding four big figures, and USD/CHF oscillated around 6-day high 1.17 handle. Japanese Yen remained heavily bid, reaching multi-week lows against USD and AUD at 98 and 63.70. Yen losses were more subdued in European crosses amid EUR and GBP weakness. In commodity FX, AUD/USD ranged between 0.6460-0.6510, while USD/CAD found selling interest just below 1.2580.

- Crude oil prices are currently gaining, after closing the NY session higher by more than 6%. The NY session gains for oil prices came as the Department of Energy's weekly report showed that crude and gasoline supplies were lower than expectations (DOE CRUDE: +717K V +1ME; GASOLINE: -3.32M V 0.0E). Additionally, the US refinery utilization rate came in at 81.4% versus the expected 82.2% and prior reading of 82.3%. As US oil refiners attempt to rebalance supply conditions with demand, refinery utilization rates are currently at the lowest level since the hurricanes in early Oct 2008. Spot Gold is currently lower and has so far declined everyday this week as the holdings of the SPDR Gold Trust ETF have remained unchanged at record levels. During the NY session, gold closed lower by more than $3.00 as Fed chairman Bernanke and Treasury Sec Geithner played down US bank nationalization concerns.