GLOBAL MARKETS-Euro drops on Greece contagion fears, stocks fall

Thu Jun 16, 2011 6:10am GMT

* Euro drops below 100-day moving average to around $1.4090
* ECB official: Europe aid fund may have to be doubled-paper
* Asia ex-Japan stocks fall 2 pct on Greece, US recovery worries
* Samsonite tumbles 11 pct on debut day in Hong Kong (Recasts, adds byline and bullets, updates prices)

By Kevin Plumberg

SINGAPORE, June 16 (Reuters) - The euro fell sharply on Thursday after a European central banker said the bail-out fund for the region's debt crisis should be doubled to 1.5 trillion euros, accelerating a pullback from riskier assets that knocked Asian stocks to near three-month lows.

Nout Wellink, governing council director of the European Central Bank, told Dutch newspaper Het Financieele Dagblad that a new Greek aid package would carry so many uncertainties and risks that a doubling in the bail-out fund would be necessary to take into account the contagion risk for both Ireland and Portugal.

The comments knocked the euro below $1.4100 and cut to the heart of fears that problems Greece faces with its black hole of debt could spread to other countries at a time when the U.S. economy may be slowing, the Federal Reserve's $600 billion bond purchase programme is ending and some investors are second guessing emerging market assets in countries such as China.

The euro was down 0.5 percent to $1.4094 by early afternoon in Asia, having fallen almost 3 cents so far this week.

The U.S. dollar index , which tracks its performance against six other major currencies, rose 0.5 percent to the highest since May 26.

Oil prices staged a weak rebound after dropping sharply overnight, though volatile markets suggested crude could resume a decline before long.

Investors have been re-positioning their portfolios with an eye on the litany of risks ahead of U.S. data later in the day that included May housing starts, weekly jobless claims and the Federal Reserve Bank of Philadelphia business outlook survey. .

"There is very clearly an environment now in which risk is off and to that investors shy away from obvious risk on assets such as equities and high beta currencies," said John Woods, managing director and chief investment strategist with Citi Private Bank.

Woods told Reuters Television that he has been advising that his clients look at local currency bond markets in Asia that have been resilient to pressures coming from the euro zone and still offer relatively high yield.

Greek Prime Minister George Papandreou said he will form a new cabinet on Thursday and seek a vote of confidence from his fractious Socialist party to push through a harsh austerity bill, as riot police battled tens of thousands of protesters in the heart of Athens.

UNCERTAINTY MAGNIFIED

Greece must pass a new campaign of tax rises and spending cuts to receive a new EU/IMF bailout and a 12 billion euro aid tranche that Athens needs to pay back debt that matures in August. But many analysts and economists believe it is bound to default on its debt sooner or later.

"Greece is like a Lehman Brothers situation, except a country version," said Tanrich Securities' Vice-President Jackson Wong in Hong Kong. "It's magnifying uncertainty right now, even though most banks don't have much exposure to the euro debt situation."

In Japan, the Nikkei fell 1.7 percent, with growth-sensitive shares such Canon and Mazda Motor underperforming.

Other Asian markets also retreated, with the MSCI Asia Pacific ex-Japan index sliding 2.4 percent. Shares of materials and technology companies were among the weakest performers on fears of faltering global growth.

Hong Kong's Hang Seng Index slumped 1.9 percent to its lowest level this year, with shares of HSBC , Europe's top lender, falling 1.5 percent and weighing on the broader market.

Samsonite International SA , the world's biggest luggage maker, dropped 11 percent in its Hong Kong trading debut on Thursday, reflecting weak investor appetite for initial public offerings.

Foreign bearishness about Chinese equities, partly over corporate governance issues, have made investors increasingly cagey about the outlook for the Hang Seng with short-selling seeing a pick-up to levels last seen eight months ago.

In commodities markets, oil prices CLc1 LCOc1 recovered in Asian trade after a more than 4 percent slide in the U.S. session as the rising dollar and signs of further economic weakness fed demand worries.

August Brent crude futures jumped more than a dollar, topping $114 a barrel, in the wake of a larger-than-expected draw in U.S. crude stocks.

(Additional reporting by Clement Tan in Hong Kong; editing by Kim Coghill, sourced Thomson Reuters)