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Asia stocks fall after Spain gets downgrade

Pamela Sampson, AP Business Writer

Currency traders work at the foreign exchange dealing room of the Korea Exchange Bank headquarters in Seoul, South Korea, Wednesday, Oct. 10, 2012. Worries about Europe's debt crisis, signs of weak global growth and expectations of lower U.S. corporate earnings sent most Asian stock markets down Wednesday. South Korea's Kospi dropped 1.4 percent at 1,955.84. (AP Photo/Lee Jin-man)

BANGKOK (AP) -- Asian stock markets fell Thursday after Spain, the fourth-largest euro economy, was slapped with a two-notch credit downgrade and the U.S. earnings season opened with a whimper.

Standard & Poor's downgraded Spain's debt late Wednesday from BBB+ to BBB-, the lowest investment-grade level. S&P said the action was due to the country's recession, high unemployment and social unrest, which limit the government's options for reversing the country's financial crisis.

Meanwhile, aluminum giant Alcoa marked the unofficial start to U.S. corporate earnings season by beating earnings estimates but investors were disappointed that the company cut its demand forecast for the year, mostly due to a slowdown in China.

In another sign of a worsening global slowdown, South Korea's central bank cut its benchmark interest rate and lowered economic growth forecasts for this year and next.

The turbulence from abroad dragged Asian stocks lower. Japan's Nikkei 225 index fell 0.6 percent to 8,546.80. South Korea's Kospi shed 0.8 percent to 1,932.74. Australia's S&P/ASX 200 lost less than 0.1 percent to 4,490.50. Hong Kong's Hang Seng, however, rose 0.2 percent to 20,969.90.

On Tuesday, the International Monetary Fund reduced its growth forecast for the world economy to 3.3 percent this year from 3.5 percent. Its forecast for growth in 2013 is 3.6 percent, down from 3.9 percent three months ago and 4.1 percent in April. Global growth concerns are weighing heavily on market sentiment.

"From here on in, it's going to be a matter of how much economic or corporate earnings growth there is. And the outlook for that is still pretty flat, as evidenced by what the IMF is saying," said Ric Spooner, chief market analyst at CMC Markets in Sydney.

Spain presented yet another deeply worrying problem. Last month, the European Central Bank agreed to buy unlimited amounts of the government bonds of struggling European countries such as Spain to help lower their borrowing costs. But the governments first need to apply for a bailout.

Spain has not applied for a bailout. Instead, the government has introduced a series of austerity and labor measures in a bid to bring down its budget deficit and convince investors it can manage its finances without outside help.

"The slow progress towards a sovereign bailout for Spain will have likely played a role in the (S&P) decision, a factor that is also weighing on general market sentiment," analysts at Credit Agricole CIB in Hong Kong said in a market commentary. "The debt downgrade may on the margin increase the pressure on the Spanish government to request a formal bailout."

Among individual stocks, Toyota Motor Corp. fell 1.6 percent after the company was forced to recall 7.4 million cars from around the world due to faulty power window switches.

Shares of Australia's Lynas Corp. plunged 14.5 percent after a Malaysian Court delayed the start of production at its rare earths processing plant to consider objections by environmentalists and other opponents of the project.

Chinese property shares rose on expectations of action by the government to spur growth by supporting infrastructure projects. Hong Kong-listed China Railway Construction Corp. jumped 4.7 percent. China Railway Group rose 3.8 percent.

Wall Street stocks dropped Wednesday. The Dow Jones industrial average fell 1 percent to 13,344.97. The Standard & Poor's 500 index lost 0.6 percent to 1,432.56. The Nasdaq composite index dropped 0.4 percent to 3,051.78.

The U.S. quarterly earnings season is expected to be the weakest in three years. Analysts project that companies in the S&P 500 will collectively report third-quarter earnings that are 1 percent lower compared with the same quarter of last year.

Chevron, the second-largest U.S. oil company, has warned that slumping oil prices and production would cause earnings to be "substantially lower."

Benchmark crude for November delivery was up 37 cents to $91.62 per barrel in electronic trading on the New York Mercantile Exchange. The contract fell $1.14 to finish at $91.25 per barrel on the Nymex on Wednesday.

In currencies, the euro fell to $1.2863 from $1.2897 late Wednesday in New York. The dollar fell to 78.05 yen from 78.19 yen.