* Asia shares tumble 1.8 pct, nearly wiping out 2013 gains
* Nikkei sheds 1.9 pct as yen firms broadly earlier
* Dollar index inches closer to 7-month highs, gold rises 1
* Sovereign debt from Treasuries to JGBs rally
* European shares seen sliding
By Chikako Mogi
TOKYO, March 18 Stocks and commodities fell
sharply in Asia on Monday as investors were rattled by a radical
bailout plan for Cyprus and piled into safer assets including
the U.S. dollar, gold and sovereign debt.
European markets are also expected to fall, with financial
spreadbetters predicting London's FTSE 100, Paris's
CAC-40 and Frankfurt's DAX to open down as much
as 2 percent. A 1.4 percent slide in U.S. stock futures
suggested a lower Wall Street start as well.
Cyprus and international lenders agreed at the weekend that
savers in the island's outsized banking system would take a hit
in return for the offer of 10 billion euros ($13.07 billion) in
aid, breaking with previous European Union practice that
depositors' savings are sacrosanct and raising fears that it
could set a precedent for future euro zone bailouts.
The MSCI's broadest index of Asia-Pacific shares outside
Japan slumped 1.8 percent to its lowest level
since Jan. 2. It was the steepest one-day fall since late July.
The materials sector led the decline with a
2.2 percent slide as London copper shed 1.8 percent to
$7,610 a tonne. Resources-reliant Australian shares
plunged 2 percent.
"What happened ... is best described as a precautionary
sell-off by the markets, some profit taking and some lighting
positions, in case this situation escalates," said Ric Spooner,
chief market analyst at CMC Markets in Sydney.
"But it's too early to make that call, we have to see what
happens from here. First step will be to see what Cyprus'
parliament does. If they reject these measures, then markets may
at the least see some increased uncertainty in the period of
negotiations," he said.
Crude oil and Brent both tumbled 1.1 percent to $92.46
a barrel and to $108.62 respectively.
Assets perceived as safe-haven were bolstered by the sharp
risk aversion, pushing spot gold as much as 1 percent
higher to a three-week high of $1,608.30 an ounce earlier.
Bullion was last trading up 0.4 percent at $1,597.81.
"It's a Cyprus shock. The euro fell, and crude followed that
lower," said Ken Hasegawa, a commodity sales manager at Newedge
in Tokyo. "We don't know what's going to happen, and it's
becoming an uncertain factor."
Cyprus was working on a last-minute proposal to soften the
impact of a bank deposit levy on smaller savers ahead of a
parliamentary vote on Monday on the measure central to the
The dollar strengthened 0.7 percent to 82.824 against a
basket of major currencies, inching closer to a
seven-month high of 83.166 hit last Thursday. The euro touched a
three-week low of $1.2888.
Investors flocking for safety drove yields down for
benchmark government bonds in Asia. The 10-year Japanese
government bond yield fell to 0.590 percent, just
above a 10-year low of 0.585 percent hit on March 4.
Australia's three-year cash yields shed 15 basis
points to 2.96 percent, the biggest daily drop since May last
year. Ten-year U.S. Treasury yield plunged 8 bps to
1.91 percent in Asia.
Asian credit markets faltered along with the significant
retreat in broad risk assets, widening the spread on the iTraxx
Asia ex-Japan investment-grade index by eight bps.
Risk markets have seen similarly big one-day moves over the
past few months, and despite today's moves, markets have so far
remained within the trading range of the past several months.
But since much of the market rally so far this year has been
based on an assumption that short-term risks were significantly
reduced, some of buying momentum could be wound down if such a
view were to change.
The yen rose broadly early in the session, briefly touching
93.45 yen against the dollar and 121.585 yen
against the euro, as well as gaining nearly two full yen against
the risk-sensitive Australian dollar. The yen
stabilised later to stand at 94.61 yen against the dollar and
98.04 against the Aussie.
The yen's rebound weighed on Japanese shares, with the
Nikkei stock average slipping 1.9 percent.
While uncertainty over how the broader euro zone markets
react to Cyprus' news later on Monday weighed on sentiment in
Asia, some say fears of contagion risk are overdone.
"There will certainly be confusion in Cyprus and investors
looking just at headlines may fret about its case becoming a
model," said Yuji Saito, director of foreign exchange at Credit
Agricole in Tokyo.
"I doubt that the case in Cyprus will trigger contagion
risks across the euro zone, as the size of the country is too
small and its industrial structure is very different from other
euro zone members, in that Cyprus is dependent on just tourism
and the financials sector," Saito said.