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Asian stocks hit after euro warning

Asian stocks sank after Standard and Poor's warned 15 countries using the euro that it could downgrade their credit ratings.

Scepticism over a new plan to prevent a breakup of the common currency also dragged markets lower.

Benchmark oil fell to near 100 US dollars per barrel while the dollar rose against the euro and was steady against the yen.

Japan's Nikkei 225 dropped 1.3% to 8,583.46. South Korea's Kospi fell 1.5% to 1,893.33 and Hong Kong's Hang Seng lost 1.5% to 18,889.76. Australia's S&P/ASX 200 shed 1.4% to 4,263.10. Benchmarks in Singapore, Taiwan and mainland China also gave up ground. Malaysia and Thailand rose.

The S&P announcement came only hours after French president Nicolas Sarkozy and German Chancellor Angela Merkel on Monday unveiled sweeping plans to change the European Union treaty in an effort to keep tighter checks on overspending nations.

The S&P warning left out only two of 17 countries that use the euro: Cyprus, whose bonds have near-junk status, and Greece, whose low ratings already suggest it is likely to default soon anyway.

The inclusion on the list of Germany and France means those countries could lose their coveted AAA ratings. Without the AAA rating, the highest available, those two countries might not be unable to raise enough money to bail out their weaker neighbours.

Mr Sarkozy and Ms Merkel discussed several broad changes for the EU treaty, including the introduction of a penalty for any government that allows its deficit to exceed 3% of gross domestic product. The penalty would be automatic - unless a majority of nations opposed it, a loophole that drew sharp criticism from analysts.

Andrew Sullivan, principal sales trader at Piper Jaffray in Hong Kong, said the sanctions were "subject to political control" and in reality represent no meaningful change from mechanisms already in existence.

The French-German proposal will be taken up at a summit of EU leaders on Thursday and Friday aimed at fixing a debt crisis so severe that it threatens the viability of the euro currency. A collapse could lead to a severe recession in Europe and trigger economic ramifications across the globe.

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