Asian markets have dipped after Cyprus bailout plans triggered fears of an escalation of the eurozone debt crisis.
The EU and IMF want all bank customers to pay a levy in return for a bailout worth 10bn euros ($13bn; £8.6bn).
The plan is yet to be finalised, but the news of the deal caused a rush to the cash machines in Cyprus as people tried to withdraw money.
Japan’s Nikkei 225 index fell 2.5%, Hong Kong’s Hang Seng dipped 2.2% and Australia’s ASX 200 was down 2%.
Analysts said that investors were sceptical about how the developments in Cyprus may affect other bigger eurozone economies which may also need bailout funds in the future.
The big fear being that, if approved, the plan may set a precedence for those countries.
“There will certainly be confusion in Cyprus and investors looking just at headlines may fret about its case becoming a model,” said Yuji Saito, director of foreign exchange at Credit Agricole in Tokyo.
‘Risk aversion’
The developments in Cyprus also had an impact on the currency markets.
The euro fell nearly 3% against the the Japanese yen. It was trading as low as 121.58 yen to the euro in Asian trade on Monday, down from 124.93 yen on Friday in New York.
The single currency also dipped to a three-month low against the US dollar. It was trading at $1.2895, down from late Friday’s level of around $1.30.
Meanwhile, the Japanese currency, considered by many as a safe haven asset in times of uncertainty, also gained against the US dollar.
It rose as high as 93.45 yen against the US dollar on Monday, from 96.11 yen on Friday.
Analysts said the fresh concerns over eurozone debt crisis, triggered by the developments in Cyprus, had resulted in investors looking to ditch relatively riskier assets.
“The week has started with a clear rise in risk aversion, following the surprise weekend decision in Brussels to slug all depositors in Cypriot banks with a levy in order to approve euro 10bn bailout funds,” said Sean Callow, a senior currency strategist at Westpac.
At the same time, analysts said, the rise in the yen’s value – which makes Japanese exports more expensive and also hurts profits of exporters – was also hurting investor morale in Tokyo.
“The yen is back to 95 to the dollar. This is bad news for the Japanese market,” said Takashi Hiroki, chief strategist at Monex Inc.
No Contagion
This is the first time the 17-nation eurozone has sanctioned dipping into people’s savings to finance a bailout.
Under the levy, bank customers with less than 100,000 euros would have to pay 6.75%, those with more than 100,000 euros would pay 9.9%.
However, depositors in Cypriot banks outside the country, including in Greece, are unaffected by the levy.
–BBC
