TOKYO (Reuters): Risk assets from oil to shares slumped on Monday after elections in Greece and France fuelled questions about commitments from struggling euro zone economies to pursue austerity policies seen widely by markets as vital to resolving the bloc's debt crisis.
Much weaker-than-expected U.S. jobs data on Friday added to concerns as it raised the biggest question mark yet about the prospects of growth in the world's largest economy.
MSCI's broadest index of Asia-Pacific shares outside Japan shed 2.2 percent to a three-month low, with the materials sector and growth-sensitive sectors such as technology leading the declines. U.S. stock futures were down 1.1 percent.
Japan's Nikkei stock average tanked as much as 2.9 percent to a three-month low, with export-reliant names and financials outperforming.
The outcome of the Greek election was having a much bigger impact than French election results, market players said.
"The issue is that in Greece the outcome raises the level of uncertainty a lot, because it's not clear who can form the government or in fact how long they will last, and what their attitude to the current agreements that the Greek government had reached would be," said Richard Yetsenga, Head of Global Markets at ANZ Research.
"The French outcome was as expected. The markets have already shifted to a view that austerity on its own wasn't the right policy mix and that other things needed to be considered."
Greece's two main pro-bailout parties failed to win a majority in parliament that would allow them to form a coalition, putting at risk the policies that have shielded Athens from bankruptcy and a euro exit.
The results threatened the fragile political consensus that has kept Europe's currency bloc intact through more than two years of crisis and raised pressure on Germany to take a more growth-oriented approach to the crisis.
In France, socialist Francois Hollande swept to victory in France's presidential election, ousting incumbent Nicolas Sarkozy who had played a key role in structuring bailout schemes for indebted euro zone members and pushed for strict fiscal policies aimed at managing huge debts, in close cooperation with German Chancellor Angela Merkel.
"Austerity will not work to solve Europe's debt crisis. However, shifting austerity to higher earners and business will accelerate the debt crisis," said Jeff Sica, president of SICA Wealth Management, which manages more than $1 billion in client assets, real estate and private equity holdings.
Merkel invited Hollande to visit Berlin as soon he could for a meeting that would set the groundwork for a consensus on growth policies vital to the euro zone's future health.
"The Merkel/Hollande initiative will never materialise due to Hollande and Merkel being polar opposites with no chance to agree on anything," Sica said.
RISK OFF, SAFETY ON
U.S. crude futures dropped more than $3 a barrel while Brent crude fell more than $2.50 after elections and U.S. jobs data.
The Australian dollar fell to a four-month low near $1.0111 against the U.S. dollar on Monday while the euro fell to its lowest since Jan. 25 of $1.2955.
"Risk sentiment has taken a further hit this morning with risk currencies slumping following the developments out of Europe," said Stan Shamu, strategist at IG Markets.
Risk aversion hit Asian credit markets, pushing the spread on the iTraxx Asia ex-Japan investment-grade index wider by 9 basis points, but safe-haven assets such as government debts and the yen rose on Monday.
The dollar stayed below 80 yen, capped by the yen's firmness against the euro after the single currency hit 103.24 yen, its lowest level since mid-February.
The yield on the benchmark 10-year Japanese government bond slipped 2 basis points to 0.865 percent, its lowest level since October 2010.
Mitsuru Sahara, chief FX manager at Bank of Tokyo Mitsubishi-UFJ in Tokyo, said the euro was expected to stay pressured due to a bearish technical outlook, possibly moving towards the year low near $1.26, while waning optimism about the U.S. economy could further weigh on investors' risk appetite.
"Markets have been rallying so far this year on expectations about the solid U.S. economy, and if such views falter, it could snap uptrends in markets," he said, adding that a series of speeches scheduled this week by Federal Reserve officials may shed light on the Fed's latest view about U.S. growth.
Chinese data due later this week, ranging from trade balance, consumer prices and industrial output, was also in focus. Weaker data from the world's second-largest economy could underscore how vulnerable the global growth outlook is and further dent investor risk appetite.
Wall Street posted its biggest weekly fall this year after U.S. jobs data showed 115,000 workers were hired in April, well below forecasts of 170,000.T