By PAMELA SAMPSONAP Business Writer
BANGKOK (AP) - Asia stock markets fell Thursday amid ominous signs that a debt crisis roiling Greece and Spain is about to erupt elsewhere on the continent.
Investor sentiment was battered by developments Wednesday, when Italy's borrowing costs rose and Cyprus said it may seek an emergency bailout this week.
Yet another troubling sign came out of Spain, whose 10-year borrowing rate inched up to 6.71 percent from 6.67 percent. That is close to the 7 percent rate that led Greece, Portugal and Ireland to seek financial rescue packages.
Japan's Nikkei 225 index slipped 0.1 percent to 8,579.16. Hong Kong's Hang Seng dropped 0.6 percent to 18,919.56 and South Korea's Kospi lost 0.1 percent at 1,857.23. Mainland Chinese shares were mixed. Benchmarks in Singapore and India fell, while Taiwan and New Zealand rose.
Moody's, the credit ratings agency, downgraded Spain's government debt three notches late Wednesday, placing it one level above junk status. It downgraded Cyprus's debt by two, pushing it deeper into junk rating.
Italy, meanwhile, had setbacks of its own. Its 10-year borrowing rate rose to 6.07 percent from 6.02 percent, and the interest rate on its one-year bonds also rose sharply.
The situation may come to a head Sunday, when Greek voters will choose a new government. That will determine whether the country sticks to its highly unpopular austerity program of tax hikes and spending cuts in order to continue receiving international financial aid.
If political parties are elected that favor reneging on the program - considered by many Greeks to have imposed intolerable hardships - the country's international bailout and its membership in the 17-nation euro currency union would be at risk.
"The Greek election will undoubtedly be seen as a landmark event in history, as it goes to the core of Greece's continuation in the eurozone and the fate of the region itself," Cameron Peacock of IG Markets in Melbourne said in a market commentary.
Apart from the maelstrom in Europe, investors are also worried about the pace of growth in the U.S. and China, the world's first- and second-largest economies.
Investors have been holding on to hopes that both countries' respective central banks will provide some type of stimulus.
Dickie Wong, executive director of research at Kingston Securities Ltd. in Hong Kong, said he expects the Fed might renew its "Operation Twist" program under which it sells shorter-term securities and buys longer-term bonds to keep their rates down. The current program expires at the end of June.
The Fed has also done two rounds of bond purchases to try to lower long-term interest rates and encourage borrowing and spending.
"The market highly expects the Fed will take some steps to stimulate economic growth," Wong said. "Next week's Fed Open Market Committee meeting will be the last one before Operation Twist ends, so I think they will introduce some kind of new measure."
Broad-based losses were spread across sectors and countries. Among heavyweights in Australia's energy and raw materials sector, mining giant BHP Billiton fell 0.9 percent and Oil Search Ltd. lost 2 percent.
South Korean blue chips also faltered. Samsung Electronics lost 1 percent while LG Electronics tumbled 3.6 percent. Hyundai Motor Co. lost 1.5 percent.
Hong Kong's Esprit Holdings Ltd. shares extended their slide, falling 10.3 percent after the clothing retailer said Chairman Hans-Joachim Korber resigned less than 24 hours after its CEO quit. The company is struggling to execute a turnaround amid weakness in Europe, its biggest market, and growing popularity of rival chains.
The turmoil in Europe weighed Wall Street down on Wednesday. The Dow Jones industrial average fell 0.6 percent to 12,496.38. The Standard & Poor's 500 fell 0.7 percent to 1,314.88. The Nasdaq composite index fell 0.9 percent to 2,818.61.
Benchmark oil for July deliver was up 31 cents to $82.94 per barrel in electronic trading on the New York Mercantile Exchange. The contract fell 70 cents to finish at $82.62 per barrel on the Nymex on Wednesday.
In currency trading, the euro fell slightly to $1.2581 from $1.2589 late Wednesday in New York. The dollar rose to 79.44 yen from 79.33 yen.
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