HONG KONG -- Investors gave short shrift to hopes of the US Federal Reserve rescuing the world economy with a further interest rate cut on Wednesday and continued to bet on a bad year, selling stocks and the dollar and buying bonds.
Financial bookmakers in London expected Britain's FTSE 100 index to open between 12 and 29 points lower, the German DAX 16 to 23 points down and the French CAC 40 10 to 20 points lower.
Investors are counting on the Fed announcing a 50 basis point cut in US interest rates at about 1915 GMT on Wednesday, which would lean further on the dollar to give the US economy a second boost in eight days, rounding off one of the steepest rate-cutting episodes since the early 1980s.
Before the Fed takes center stage, a first estimate of US fourth-quarter gross domestic product at 1330 GMT will set the mood for financial markets, providing clues on whether the world's largest economy can avoid a recession.
With a rate cut factored in, Asian markets returned to worrying about the bigger picture and by 0638 GMT, MSCI's measure of Asia Pacific stocks excluding Japan was down 2.0 percent.
The Korea Composite Stock Price Index sank 3.0 percent to its lowest close since May 9, dragged down by fears of a thinner order book for the world's top shipbuilder, Hyundai Heavy Industries Co., which tumbled almost 11 percent.
"Markets are failing to keep up with a firmer Wall Street as foreign investors keep selling local stocks," said Sung Jin-kyung, an analyst at Daishin Securities in Seoul.
"I think the Fed will slash rates by half a percentage point tonight, which will provide relief in the short term. But again, this is not going to fundamentally change the view of the US economy. Subsequent macroeconomic data will have to show the economic stimulus measures are indeed making an impact."
To darken the mood further, some doubts about the widely heralded 50 basis point cut crept in after US data showed stronger-than-expected data on consumer confidence and durable goods orders, which raised fears of a mere 25 bps trim.
"IT'S NOT THAT SIMPLE"
In Japan, the benchmark Nikkei 225 closed down 1.0 percent. Kyocera Corp. and other chip-related shares slid after a barrage of bad news and banks tumbled following reports that Mizuho Financial Group was considering injecting an additional $1.9 billion into its unit Mizuho Securities, as the brokerage continues to falter from subprime investments.
"If the Fed acts as the market expects, this means there will be few major factors remaining for the market to trade on, and investors here in Japan are worried that Wall Street could fall as a result," said Tsuyoshi Segawa, an equity strategist with Shinko Securities.
Japan is also waiting for earnings from a slew of major companies on Thursday. After Wednesday's close, Canon Inc. posted quarterly results and a 2008 outlook that missed market expectations.
Australia's benchmark S&P/ASX 200 index closed down 1.7 percent.
With the dollar expected to be weakened by the Fed's move, crude oil prices climbed to a two-week high above $92 a barrel, helped by expectations OPEC will leave production levels unchanged when it meets this week in Vienna, despite calls from the US and other consumers for the cartel to bring down prices.
Gold lingered around $920 an ounce, just shy of its latest record.
Japanese government bonds hovered in anticipation of the Fed move and investors took a wait-and-see stance as a 25 bp cut could prompt those who have expected more aggressive monetary easing to dump Treasuries, while disappointed investors could sell stocks to seek the safety of government debt.
"One cannot say that a smaller cut is negative for Treasuries and a bigger one is positive," said Akihiro Nishida, senior economist at Mitsubishi UFJ Securities. "This time it's not that simple."
