Banks put brake on gains

JAPANESE stocks failed to hold early gains that dragged the market back from 18-month lows today. A burst of speed by motor manufacturers following yesterday's zippy third-quarter results from Honda Motor was countered by continuing weakness in big bank stocks and the Nikkei 225 lost 54.75 points to 9420.85.

Investors in other Asian markets began to balance their books ahead of the long lunar new year holiday, which will close most markets early next week.

Honda shares leaped 1.6% as analysts upgraded full-year estimates following a 75% profits boost in the third quarter, and other motor makers and exporting companies were not far behind.

Bank shares continued to be crushed by growing apprehension about Japan's bad-debt crisis following yesterday's downgrading of seven banks by Standard & Poor's. There were falls of up to 3% among the largest lenders as the recent slide in share prices added massive portfolio losses to the mountain of non-performing loans.

Investors were not encouraged by reports that Bank of Japan was set to take action to ease monetary policy tomorrow in an effort to prop up the ailing financial system. Assurances from BoJ Governor Masaru Hayami that the pumps will be primed if necessary brought little cheer as the problem now looks behind any short-term remedy.

The Enron and Tyco fallout continued to depress HSBC Holdings stock in Hong Kong. Trade in the shares dominated market action and the price fell 75 cents to HK$8, dragging the Hang Seng index down 16.8 points to 10,592.4.

A bumpy morning in South Korea's markets left the Kospi 2.62 points ahead at 742.53. Retail investors were happy to unload stock on to foreigners who were encouraged by a Bank of Korea report that the country's gross domestic product grew 3%, against earlier estimates of 2.8%.

The brightening outlook fuelled demand for stocks linked to the domestic economy, lifting home appliances giant LG Electronics 2%.

Taiwan investors were in holiday mood ahead of the seven-day break and the Weighted Average rose 76.12 to 5920.37 on brisk buying of chip giant Taiwan Semiconductor after it projected a 30% sales gain this year. News Corp stock in Sydney looked set to test a six-month low before some late buying pared losses, but doubts over the future of its US earnings still left the price down more than 1%.

The fall weighed on the All Ordinaries, although the index ended 31.2 higher at 3424.5. Bank shares were battered following a profits warning from the Macquarie Bank, which sent its stock tumbling more than 10%. Gold and other resources stocks swam upstream on stronger bullion prices and continued takeover talk.

The recent big slide in Singapore banks and other blue-chips on earnings fears encouraged bargain-hunting, which took the Straits Times index up 21 to 1748.6.

Further profit-taking in Malaysian stocks pulled the Kuala Lumpur Composite index down 4.02 to 716.31 but Thailand's SET index rose for a second day and added 1.32 to 344.69 on hopes that the country's banks are about to get more favourable ratings from credit agencies.

The Jakarta Composite index weakened by 6.84 to 443.65.