Asian financial stocks fell, countering gains by the region's chipmakers, as a US bailout of American International Group Inc failed to ease concerns that credit-related losses will cause more financial failures.
Macquarie Group Ltd slumped 7.8 percent in Sydney even after denying a newspaper report that the company may face difficulty in refinancing debt. Finance stocks gave up gains after CNBC reported that Morgan Stanley was considering seeking a merger partner.
Hynix Semiconductor Inc. jumped 9.9 percent after a bid from Samsung Electronics Co for US-based SanDisk Corp raised speculation that product prices will rise.
It's "difficult for market participants to predict whether regulators will bail out other financial institutions when they need help", said Hiroshi Morikawa, who helps manage about $14 billion as a strategist at MU Investments Co in Tokyo.
"Investors are still spooked. Considering the equity market is far from stable, I still recommend holding cash rather than stocks."
Most markets in Asia retreated, with China's CSI 300 Index declining 3.6 percent as of 3 pm in Shanghai, while Hong Kong's Hang Seng Index lost 2 percent. Japan's Nikkei 225 Stock Average climbed 1.2 percent to 11749.79.
The MSCI Asia Pacific Index was little changed at 110.45. The measure plunged the most in eight months on Tuesday as credit turmoil pushed Lehman Brothers Holdings Inc to bankruptcy, and caused a debt-rating downgrade of AIG. The regional gauge is down 30 percent this year.
Inner Mongolia Yili Industrial Group Co slumped in Shanghai after China's food safety regulator said the company was among 22 linked to milk tainted with the industrial chemical melamine.
US stocks climbed, driving the Standard & Poor's 500 Index 1.8 percent higher, as speculation AIG would weather a funding shortage boosted financial shares in the last hour of trading. S&P futures gained 0.3 percent yesterday.
The Federal Reserve said it will lend as much as $85 billion to AIG, giving the government a 79.9 percent stake in the company. A "disorderly failure" could compound declines in financial markets, lead to higher borrowing costs and dent economic growth, the Fed said.
AIG's collapse would have threatened more financial companies and cost them $180 billion in losses, according to RBC Capital Markets.
Macquarie sank 7.8 percent to A$33.93, taking its loss in the past three days to 23 percent.
A report in the Australian newspaper that Macquarie may face difficulties refinancing A$5 billion of debt is misleading, spokeswoman Paula Hannaford said. The Sydney-based company is confident it can refinance debt even as the global credit squeeze worsens, she said.
China Merchants Bank Co dropped 7.4 percent in Hong Kong to HK$18.20 after saying it held $70 million of debt issued by Lehman. Aozora Bank Ltd, which had 60 billion yen in loans to Lehman, sank 5.3 percent to 162 yen, extending Tuesday's 16 percent fall.
Nick Footitt, a Morgan Stanley spokesman in Hong Kong, wasn't immediately available to comment on CNBC's merger report.
Morgan Stanley wasn't in any merger discussions as of late yesterday, CNBC said. Further movements in Morgan Stanley's stock could make senior management change track and seek a partner, the report said, citing people it didn't identify.
Japan's banks and insurers announced a combined 245 billion yen of potential losses tied to Lehman's collapse. The investment bank is likely to become the first US company to default on a samurai bond, threatening other borrowers' access.
Hynix Semiconductor jumped 9.9 percent to 19,900 won, after rival Samsung Electronics made a $5.85 billion hostile bid for SanDisk Corp in what would be its biggest acquisition. Samsung was unchanged at 525,000 won.
Samsung offered $26 in cash for each SanDisk share, or 73 percent more than the memory-card maker's latest closing price, the South Korean company said in a statement.
SanDisk, based in Milpitas, California, said its board rejected the offer.
Advantest Corp, the world's biggest maker of memory-chip testers, gained 4 percent to 2,335 yen. NEC Electronics Corp, Japan's No 3 chipmaker, added 3.9 percent to 2,280 yen. Inner Mongolia slumped 10 percent to 12.09 yuan, extending Tuesday's 6 percent decline.
Canon Inc, Japan's largest office-equipment maker, climbed 3.4 percent to 3,970 yen, snapping a five-day decline, after saying it will spend as much as 50 billion yen to buy back up to 14.5 million of its own shares.