(Agencies)
Updated: 2008-01-22 16:29

The American economy has been battered by a slump in the housing market and a credit crisis that has led to billions of dollars of losses among major US banks.

There are already signs this is extending to less spending by American consumers, and that means less demand for Asian and European exports.

"You can see investors have lost confidence in the US government's ability to handle the subprime situation," said Castor Pang, a strategist at Sun Hung Kai Financial in Hong Kong. "The policy to stimulate the economy has not measured up."

In Europe Monday, investors also dumped stocks, sending the Britain's benchmark FTSE-100 down 5.5 percent and France's CAC-40 Index sliding 6.8 percent. Germany's blue-chip DAX 30 plunged 7.2 percent to 6,790.19.

That slide continued Tuesday, with benchmark indices in China, South Korea and Singapore falling at least 4 percent. Australia's benchmark index slid 7.1 percent and Indonesia's market was down 9 percent.

Takeuchi said investors feel that the selloff is spreading worldwide, setting off fears of a global downturn. Risks of economic contraction have been growing in Japan as both exports and consumer spending are weakening, he said.

Kirby Daley, strategist at Newedge Group, said Japan's Nikkei index could shed another 10 percent to 15 percent in the next few months. Japanese companies depend on exports and capital investments to keep up profits, and both are endangered if there is a US slowdown, he said.

"The argument that valuations are cheap for Japanese stocks is flawed," Daley said. "The basis for those earnings valuations doesn't consider ongoing problems in the US economy, which are likely to get worse."

Even usually upbeat Japanese Economy Minister Hiroko Ota acknowledged that downsides risks are growing, given the volatile markets and surging oil prices.

"The economy keeps recovering as recent production data show, but downside risks are growing these days," Ota told reporters.

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