Asian stocks,commodities in broad selloff on jitters over Cyprus deal

Cyprus and international lenders agreed at the weekend that savers in the island8217;s outsized banking system would take a hit in return for the offer of 10 billion euros 13.07 billion in aid,breaking with previous European Union practice that depositors8217; savings are sacrosanct and raising fears that it could set a precedent for future euro zone bailouts.

The MSCI8217;s broadest index of Asia-Pacific shares outside Japan slumped 1.8 percent to its lowest level since Jan. 2. It was the steepest one-day fall since late July.

The materials sector led the decline with a 2.2 percent slide as London copper shed 1.8 percent to 7,610 a tonne. Resources-reliant Australian shares plunged 2 percent.

8220;What happened 8230; is best described as a precautionary sell-off by the markets,some profit taking and some lighting positions,in case this situation escalates,8221; said Ric Spooner,chief market analyst at CMC Markets in Sydney.

8220;But it8217;s too early to make that call,we have to see what happens from here. First step will be to see what Cyprus8217; parliament does. If they reject these measures,then markets may at the least see some increased uncertainty in the period of negotiations,8221; he said.

Crude oil and Brent both tumbled 1.1 percent to 92.46 a barrel and to 108.62 respectively.

Assets perceived as safe-haven were bolstered by the sharp risk aversion,pushing spot gold as much as 1 percent higher to a three-week high of 1,608.30 an ounce earlier. Bullion was last trading up 0.4 percent at 1,597.81.

8220;It8217;s a Cyprus shock. The euro fell,and crude followed that lower,8221; said Ken Hasegawa,a commodity sales manager at Newedge in Tokyo. 8220;We don8217;t know what8217;s going to happen,and it8217;s becoming an uncertain factor.8221;

Cyprus was working on a last-minute proposal to soften the impact of a bank deposit levy on smaller savers ahead of a parliamentary vote on Monday on the measure central to the bailout.

FLIGHT-TO-QUALITY

The dollar strengthened 0.7 percent to 82.824 against a basket of major currencies,inching closer to a seven-month high of 83.166 hit last Thursday. The euro touched a three-week low of 1.2888.

Investors flocking for safety drove yields down for benchmark government bonds in Asia. The 10-year Japanese government bond yield fell to 0.590 percent,just above a 10-year low of 0.585 percent hit on March 4.

Australia8217;s three-year cash yields shed 15 basis points to 2.96 percent,the biggest daily drop since May last year. Ten-year U.S. Treasury yield plunged 8 bps to 1.91 percent in Asia.

Asian credit markets faltered along with the significant retreat in broad risk assets,widening the spread on the iTraxx Asia ex-Japan investment-grade index by eight bps.

Risk markets have seen similarly big one-day moves over the past few months,and despite today8217;s moves,markets have so far remained within the trading range of the past several months.

But since much of the market rally so far this year has been based on an assumption that short-term risks were significantly reduced,some of buying momentum could be wound down if such a view were to change.

FEARS OVERBLOWN

The yen rose broadly early in the session,briefly touching 93.45 yen against the dollar and 121.585 yen against the euro,as well as gaining nearly two full yen against the risk-sensitive Australian dollar. The yen stabilised later to stand at 94.61 yen against the dollar and 98.04 against the Aussie.

The yen8217;s rebound weighed on Japanese shares,with the Nikkei stock average slipping 1.9 percent.

While uncertainty over how the broader euro zone markets react to Cyprus8217; news later on Monday weighed on sentiment in Asia,some say fears of contagion risk are overdone.

8220;There will certainly be confusion in Cyprus and investors looking just at headlines may fret about its case becoming a model,8221; said Yuji Saito,director of foreign exchange at Credit Agricole in Tokyo.

8220;I doubt that the case in Cyprus will trigger contagion risks across the euro zone,as the size of the country is too small and its industrial structure is very different from other euro zone members,in that Cyprus is dependent on just tourism and the financials sector,8221; Saito said.