Asian Stocks Fall on Record Oil Price, Accelerating Inflation

By Chua Kong Ho and Patrick Rial

June 27 (Bloomberg) -- Asian stocks fell, putting the region's benchmark index on course for its worst first half since 1992, on concern rising prices and fuel costs will erode economic growth and profits.

Matsushita Electric Industrial Co., the world's largest consumer-electronics maker, declined after Japan's inflation almost doubled and household spending dropped. Warehouse Group Ltd., New Zealand's biggest discount retailer, tumbled after cutting a profit forecast as the nation's economy contracted. Taiwan's Taiex Index slumped the most in five months after the central bank raised borrowing costs to a seven-year high. Declines were exacerbated as oil topped $140 a barrel.

``If central banks continue to push for tighter monetary policy while the economy is on the skids, you could see a major collapse,'' said Masaru Hamasaki, a senior strategist in Tokyo at Toyota Asset Management Co., which manages about $3.3 billion. ``Funds are moving their money into commodities like oil, which is boosting inflation figures.''

The MSCI Asia Pacific Index fell 2 percent to 136.28 at 10:52 a.m. in Tokyo, set for its lowest close since March 24. Two thirds of the measure's 990 members dropped. The index is down 12 percent this year, headed for its worst six months to June since a 23 percent drop in 1992.

Japan's Nikkei 225 Stock Average lost 2.1 percent to 13,536.23. New Zealand's NZX 50 Index tumbled 2.4 percent, its biggest decline since November 2002, after the economy shrank in the first quarter, putting the country on the brink of a recession.

South Korea's Kospi Index sank 2.2 percent. Inflation probably quickened to more than 5 percent this month for the first time since 1998, according to economists surveyed by Bloomberg News.

Great Depression

U.S. stocks tumbled yesterday, sending the Dow Jones Industrial Average to its worst June since the Great Depression, as higher oil, credit-market writedowns and a slowing economy threatened to extend a yearlong profit slump.

Oil rose to a record $140.39 a barrel in New York yesterday, after Libya said it may cut output, OPEC's president said prices may reach $170 by the summer and the dollar weakened.

Matsushita Electric dropped 3 percent to 2,280 yen, the most since June 12. Sony Corp., the second-largest maker of consumer electronics, declined 3.8 percent to 4,870 yen, the sharpest decline since April 14.

The dollar slumped to as low as 106.62 yen in New York trading, a level not seen since June 11, dimming the profit outlook for Japanese companies reliant on overseas sales.

Spending, Inflation

Household spending declined 3.2 percent in Japan, the most since September 2006, the statistics bureau said. The ratio of jobs for each applicant slid to 0.92. Core consumer prices, which exclude fruit, fish and vegetables, climbed 1.5 percent from a year earlier after rising 0.9 percent in April.

Mitsubishi UFJ dropped 2.7 percent to 939 yen, while rival Mizuho Financial Group Inc. declined 3.1 percent to 504,000 yen.

Taiwan Semiconductor Manufacturing Co., the world's largest custom-chip maker, tumbled the most in three weeks in Taipei, after Goldman, Sachs & Co. downgraded the stock to ``neutral'' from ``buy,'' citing slumping demand.

``We've entered a period of global stagflation, with record oil prices and slowing growth,'' said Leslie Phang, Singapore-based head of investments at the private clients unit of Schroders Plc, which manages $260 billion assets worldwide. ``Central bankers have got to decide whether they want to sacrifice growth or live with inflation.''

To contact the reporter for this story: Chua Kong Ho at kchua6@bloomberg.net; Patrick Rial in Tokyo at prial@bloomberg.net.