Asian stocks edged lower for a fifth day while the U.S. dollar rose to a three-year high against a basket of currencies on Wednesday, after Federal Reserve Chairman Ben Bernanke gave a grim view on the financial sector.
Australian shares dropped to the lowest since August 2003 after a report showed gross domestic product unexpectedly shrank in the fourth quarter for the first time in eight years, as the steep slowdown in global demand tore through Asian economies.
Days after American International Group posted the largest U.S. corporate loss ever and received a $30 billion government bailout -- its second rescue -- Bernanke left open the possibility that even more money may be needed to stabilize the banking system, 19 months after the financial crisis broke out globally.
There are concerns about revenue growth for banks due to slowing global and domestic economies, said Savanth Sebastian, equities economist at broker CommSec in Australia.
Japan's Nikkei share average <.N225> fell 0.8 percent, with stocks of struggling automakers such as Honda Motor Co <7267.T> and Toyota Motor Corp <7203.T> among the biggest drags on the index. The Nikkei hit a 25-year low on Tuesday.
The country's mega banks were under pressure after financials led the S&P 500 index <.SPX> to close below 700 for the first time since October 1996. Mitsubishi UFJ Financial Group <8306.T> was down 2.1 percent, while Sumitomo Mitsui Financial Group <8316.T> fell 2.8 percent.
The MSCI index of Asia-Pacific shares outside Japan dipped to a fresh three-month low <.MIAPJ0000PUS> and was 4.5 percent away from a five-year low reached in November 2008.
The 1.4 percent fall in Australia's benchmark S&P/ASX 200 index <.AXJO> led the region.
Hong Kong's Hang Seng index <.HSI> was relatively unchanged, as a 2.7 percent fall in HSBC stock <0005.HK> was offset by strength in shares of Chinese banks.
Many policymakers have their eyes set squarely on China, hoping the world's fourth-largest economy can tap its savings to help global growth.
A senior Chinese economic planning official offered a spot of hope on Wednesday, saying the government will increase spending in areas such as infrastructure and manufacturing on top of the 4 trillion yuan ($584.7 billion) stimulus package unveiled in November.
The IntercontinentalExchange's U.S. dollar index <.DXY>, which measures its value against a basket of six major currencies, was up 0.4 percent, having risen to the highest since April 2006.
The index has gained 10 percent so far this year, as investors cash out of foreign assets and seek the dollar's liquidity as uncertainty about the global economy grows.
The Australian dollar fell 1 percent on the day to $0.6312, after data showed the domestic economy shrank by 0.5 percent on a quarterly basis in the last three months of 2008, putting the country on the brink of recession.
Upward pressure on the U.S. dollar pushed down the euro to a three-month low around $1.2455.
Currency strategists at Standard Chartered Bank said despite doubts about the U.S. dollar being able to sustain strength in 2009 on the basis of valuation, the clearest trade is still on dollar strength against Asia ex-Japan currencies.
As long as global growth expectations are turning down Asian export growth will deteriorate further and Asia ex-Japan currencies will remain under pressure. We continue to focus on that especially small open economy currencies should be hit further, they said in a note.
U.S. Treasuries remained under pressure, pushing up the yield on the benchmark 10-year note to 2.93 percent from around 2.90 percent overnight. Countless bank rescues and economic stimulus measures by the U.S. government have increased speculation that supply of Treasuries could expand by $2 trillion this year, making dealers wonder about the pittance offered by the yields of their current holdings.
Oil slipped 0.7 percent to $41.36 a barrel after rising nearly 4 percent overnight on expectations OPEC will cut output again to place a floor under prices.