Japanese shares fell on Thursday as worries about the health of the global financial sector flared again after a larger-than-expected loss from Morgan Stanley and a report that top Japanese broker Nomura had also fallen deeply into the red.
Government bonds, gold and the yen all firmed as investors shied from risk amid a weakening outlook for the global economy.
The International Monetary Fund slashed its forecasts for every major country and predicted worldwide gross domestic product would contract by 1.3 percent this year, marking the deepest post-World War Two recession by far.
Nomura Holdings <8604.T> fell about 4 percent after the Nikkei business daily reported the broker may post a loss of more than $7 billion for the year ended in March.
The report further dampened investor sentiment toward the financial sector after U.S. securities firm Morgan Stanley
Investors have also grown increasingly wary about financials ahead of the release of U.S. bank stress tests on May 4. The tests were designed to see how the country's largest banks would fare if the U.S. recession proved unexpectedly severe.
Within equities, however, pockets of strength could be found in technology and auto shares. Tech stocks were supported by buoyant earnings from iPod maker Apple Inc
In Japan, Pioneer <6773.T> jumped more than 6 percent after a company source said Honda Motor Co <7267.T> was finalizing plans for a big investment in the electronics maker. Honda rose 1.7 percent.
The market has gotten very sensitive in the short-term to individual company news, buying on good news and selling on bad, said Hiroaki Osakabe, a fund manager at Chibagin Asset Management. Today, it's really half and half -- cars and techs up, financials and trading houses down.
Japan's Nikkei <.N225> fell about 0.5 percent and the broader Topix <.TOPX> edged down by 0.3 percent. Taiwan shares were down by 0.3 percent as financial shares slid and mainland China shares were off 1 percent in early Shanghai trade, with bank lending a central concern.
China's central bank has told the country's leading banks to extend loans at a steadier and more rational pace after a surge in credit in the first quarter, Caijing magazine reported.
In the first 20 days of April the amount of outstanding loans issued by most big commercial banks had declined, which would signal an abrupt turnaround from the lending spree since the start of the year, the report said.
The MSCI index of Asia Pacific shares excluding Japan <.MIAPJ0000PUS> firmed slightly.
Hong Kong's Hang Seng index <.HSI> opened higher but a big drop in PCCW <0008.HK> shares drew the most attention. The telecommunications firm fell more than 12 percent in early trading after a Hong Kong appeals court struck down a proposal to take the company private.
South Korean shares <.KS11> rose slightly but banks underperformed, while Australia's benchmark index <.AXJO> added 1 percent on hopes of more merger activity in the beer and beverage sector.
S&P 500 futures were down 0.3 percent, indicating a lower open for Wall Street.
YEN, BONDS, GOLD FIRMER
The dollar fell against the yen for a second day as banking sector fears re-emerged, shedding 0.25 percent to 97.75 yen. The dollar touched its weakest level of the month on Wednesday, just about two weeks after hitting a six-month high of 101.45.
The euro was weaker against the yen as well, dropping to 126.92 yen from 127.38 late on Wednesday.
Uncertainty about the European Central Bank's next monetary policy move has kept selling pressure on the euro this month.
U.S. Treasuries were up modestly with stock futures slipping.
The yield on the benchmark 10-year Treasury note eased to 2.93 percent from 2.94 percent late in New York. The U.S. yield curve continued its steepening trend with the spread between 10-year notes and 2-year notes climbing above 197 basis points, the widest gap in 10 days.
Japanese bond futures were also up, with the 10-year contract expiring in June rising to 137.35, its highest since April 3.
Spot gold was up about 1 percent at $892.30 an ounce from $889.15 late in New York.
U.S. crude prices fell 0.8 percent, or 39 cents, to $48.47 a barrel on worries that the weak global economy will continue to undermine energy demand.
(Editing by Kim Coghill)