Asia stocks drop as Italy debt woes brew

Benchmark crude hovered above $98 per barrel while the dollar rose against the euro but was steady against the yen.Japans Nikkei 225 index lost 0.7 percent to 8,540.13. South Koreas Kospi index dropped 1 percent to 1,883.94 and Hong Kongs Hang Seng fell 1.1 percent to 19,295.53. Benchmarks in Australia, China, Taiwan and Singapore also retreated.Markets were buoyed the past few days as Greece and Italy moved to form new governments and embarked on other steps to get their debt troubles under control. But a worrisome sign emerged Monday when the Italian government sold five-year bonds at 6.29 percent interest the highest interest rate since 1997. Italy paid a much lower rate of 5.32 percent at a similar auction only last month. The increase is a sign that banks and other bond buyers remain concerned about Italys ability to pay its debts at a time when the countrys economy is stagnant.Italys solvency is crucial to the future of the euro currency shared by 17 nations because the country with €1.9 trillion ($2.6 trillion) in debt is too expensive to rescue from a default.Martin Hennecke, associate director of the financial advisers Tyche Group in Hong Kong, said the results of Italys bond sale showed that the worst is not over.That renewed the concern of whether or not Italy will be able to keep funding itself and prevent a similar crisis in Italy that weve seen in Greece before, Hennecke said. If that was going to happen to Italy, that could easily sink France as well by extension. French banks have huge exposure to Italy.Stocks tanked last Wednesday after the borrowing rate on Italys benchmark 10-year bonds jumped above 7 percent, a level widely seen as unsustainable. On Monday, the yield was at 6.70 percent still uncomfortably high. The 7 percent threshold is psychologically important for traders because Greece, Ireland and Portugal asked for bailouts when it became clear the rate wasnt coming back down from that level.Banking shares followed their Wall Street counterparts lower. Commonwealth Bank of Australia fell 1.8 percent and Hong Kong-listed Industrial & Commercial Bank of China, Chinas biggest commercial lender, fell 1.9 percent. Fears that the debt crises in Europe could blow up into a recession hit energy companies, which are sensitive to global growth. Energy Resources of Australia fell 2.4 percent. Japanese energy explorer Inpex Corp. fell 2.3 percent. Hong Kong-listed China National Offshore Oil Corp., known as CNOOC, lost 1.9 percent.Sagging gold prices sent Hong Kong-listed Zijin Mining Group, Chinas largest gold miner, down 1.9 percent. A falling euro pulled down the price of gold Monday because many traders buy gold as a way to protect themselves against a weak dollar.In New York on Monday, the Dow fell 0.6 percent to close at 12,078.98. The Standard & Poors 500 index fell 1 percent to 1,251.79. The Nasdaq composite index fell 0.8 percent to 2,657.22.In currency trading, the euro slipped to $1.3594 from $1.3616 late Monday in New York. The dollar was little changed at 77.12 yen.