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Singapore (ANTARA News) - Asian stock markets are expected to pull back next week amid continued concerns about the health of the U.S. economy with investors waiting for more evidence that credit markets are beginning to improve.

Regional markets managed gains this week on hopes that the worst of the credit crunch may be over following last month's rescue of Bear Stearns and capital-raising efforts at other global investment banks such as UBS and Lehman Brothers.

"The credit markets are settling down. The Fed stopped the panic. But now we have to worry about the macroeconomic picture," said Warren Hogan, head of research at ANZ Banking Group in Sydney.

"There's no way that we've seen the worst," he told Thomson Financial.

The Federal Reserve has aggressively cut rates in the first quarter of the year to restore liquidity to financial markets and aided JP Morgan in the rescue of Bear Stearns last month. But data remains weak and Fed Chairman Ben Bernanke said this week that the economy could contract in the first half, suggesting it is in recession.

U.S. manufacturing and services data from the Institute of Supply Management was better-than-expected but still showed a contraction. Investors are bracing themselves for the release later today of the March jobs data, which analysts expect will reflect another 15,000 jobs lost.

Given expectations of a continued deterioration in the U.S. economy, Hogan said investors should remain defensive.

"This rally is an opportunity for investors to lighten up on equities," Hogan said.

Morgan Stanley strategist Gerard Minack agreed and said he believes the bearish trend will continue.

"I expect a two-stage bear market in equities. With a relief rally under way as financial-sector concerns abate, investors have to remember that a second bear market is likely due to U.S. recession and a global slowdown," Minack said.

"There may now be a hiatus in selling, but I think markets will (hit) new lows later this year," he said.


Inflation pressure

Inflation, the other key economic issue of the day, will feature prominently on the agenda of central banks in Japan, South Korea and Singapore, which are due to meet next week to discuss monetary policy.

The options for policymakers appear limited.

The Bank of Japan is expected to keep its overnight call rate target unchanged at 0.5 percent at the end of its two-day meeting on Wednesday.

Investors are expecting the BoJ to refrain from any aggressive moves until a new governor is named to succeed Toshihiko Fukui, who retired last month.

Japan is hoping to appoint Fukui's successor in time for the April 11 meeting of Group of Seven finance ministers and central bank governors in Washington, a top government spokesman said this week.

Central banks in South Korea and Singapore are also expected to keep their rates unchanged when they meet on Thursday, opting to take a wait-and-see approach.

"I don't think MAS [the Monetary Authority of Singapore] should be tightening policy," said Kit Wei Zheng, economist at Citigroup.

Rather than allow the Singapore dollar to strengthen further, Kit said the government should introduce additional fiscal measures to help its citizens weather the effects of soaring inflation. MAS does not set domestic interest rates and relies on its foreign exchange policy as its main policy tool.

The financial market turmoil will also be high in the agenda of central bankers. (*)

Source