Asia stocks drop as EU debt woes weigh; Nikkei tumbles 1.2%

Investing.com - Asian stock markets were sharply lower on Thursday, as rising borrowing costs in Spain and Italy underlined concerns that the euro zone’s debt crisis was worsening, prompting investors to shun riskier assets.

During late Asian trade, Hong Kong's Hang Seng Index fell 0.6%, Australia’s ASX/200 Index shed 0.45%, while Japan’s Nikkei 225 Index tumbled 1.2%.

Appetite for riskier assets weakened amid concerns over the situation in Spain, where rising bond yields, the growing costs of bank rescues and a recession hit economy fuelled fears that Madrid will be forced to seek an international bailout.

The yield on Spanish 10-year bonds climbed to 6.7% on Wednesday, approaching the critical 7% threshold that preceded bailouts in Greece, Ireland and Portugal. Similar-maturity Italian yields increased to 5.98%.

Meanwhile, concerns over the outcome of Greek elections mounted after an opinion poll showed anti-austerity party Syriza in the lead ahead of the June 17 vote, fuelling concerns that the country will reject the terms of its bailout agreement and be forced out of the euro area.

Global equities have been rattled in recent weeks as fears over the possibility of a Greek exit from the euro zone dominated market sentiment.

Japan was trading down 11% in May, the biggest one-month fall in two years. The Hong Kong bourse lost 12.5%, its worst monthly showing since last September, while Australia was off by 8%.

In Tokyo, the Nikkei fell on the back of steep losses in exporters with high exposure to Europe, as a strengthening yen and weaker euro hurt the outlook for export earnings.

Shares in Mazda, the Japanese carmaker with the highest proportion of European sales, slumped 3.85%, Canon shares declined 3.5%, while office equipment maker Ricoh dropped 4.2%.

Losses were limited as shares in nuclear power providers surged after Prime Minister Yoshihiko Noda said it was necessary to restart idled nuclear reactors that have been confirmed safe to avoid a summer power crunch.

Chubu Electric Power jumped 6.4%, Shikoku Electric Power rose 5.8%, while shares in Kansai Electric Power and Hokkaido Electric Power gained 3.2% and 3.7% respectively.

The Nikkei is down more than 16% since hitting a one-year high on March 27, after rallying more than 19% in the first three months of the year, as China’s economic growth slowed and on renewed concern about Europe’s debt crisis.

Meanwhile, in Hong Kong, shares declined amid fading hopes for a large-scale stimulus package from China to boost slowing growth in the world’s second largest economy.

Raw material producers were lower, tracking steep losses in oil and copper prices. Shares in oil giants PetroChina and CNOOC slumped 1.3% and 1.55% respectively, while copper miner Jiangxi Copper Company fell 2.6%.

Hong Kong-based exporters with high exposure to Europe were weaker, with Esprit Holdings dropping 1.45% and Li & Fung tumbling 5%.

Losses for index heavyweights China Mobile and HSBC Holdings further weighed on the Hong Kong bourse. China Mobile lost 0.8%, while HSBC declined 0.6%.

Elsewhere, shares in Australia were weighed by steep losses in National Australia Bank. The lender plunged 5.9% as it traded exclusive of dividend.

Elsewhere across the sector, Westpac Banking Group retreated 1.2% and Commonwealth Bank of Australia slumped 0.9%.

Miners came under pressure with, Rio Tinto shares falling 0.9%, BHP Billiton losing 1% and iron ore producer Fortescue Metals tumbling 5%.

Looking ahead, the outlook for European stock markets was mildly upbeat, as markets looked set to recover from the previous day’s sharp declines.

The EURO STOXX 50 futures pointed to a gain of 0.45%, France’s CAC 40 futures rose 0.65%, London’s FTSE 100 futures added 0.55%, while Germany's DAX futures pointed to a gain of 0.55% at the open.

Earlier in the day, data showed that retail sales in Germany rose by a more-than-expected 0.6% in April, compared to expectations for a 0.1% increase.

Later in the day, the euro zone was to release official data on German employment change, while European Central Bank President Mario Draghi was due to speak.

In the U.S., reports were to be published on non-farm employment change and unemployment claims, as well as preliminary gross domestic product data.