Asian Stocks Decline as Japan's Growth Slows, Earnings Falter

By Patrick Rial and Junko Kikkawa

Aug. 13 (Bloomberg) -- Asian stocks dropped, driving the region's benchmark index to a two-year low, after Japan's economy contracted and companies reported weaker profit growth.

Mitsui Fudosan Co. paced developers lower in Tokyo after Japanese housing investment unexpectedly fell. Telstra Corp., Australia's biggest phone company, dropped the most since March after earnings missed estimates. Trend Micro Inc., the world's third-largest maker of security software, tumbled after its forecast trailed analyst projections.

``The situation is going to keep getting worse for company earnings, making stock market gains hard to come by,'' Tsuyoshi Shimizu, who helps oversee the equivalent of $26 billion at Mizuho Asset Management Co. in Tokyo, said in an interview with Bloomberg TV.

The MSCI Asia Pacific Index dropped 1.1 percent to 126.49 as of 3:41 p.m. in Tokyo, the lowest level since Sept. 26, 2006. The gauge has tumbled 20 percent this year as accelerating inflation and slower growth assailed the region's economies.

Japan's Nikkei 225 Stock Average lost 2.1 percent to 13,023.05. Mitsubishi UFJ Financial Group Inc., the country's biggest lender by value, led declines after bidding $3 billion for shares it doesn't own in a Californian bank.

Most other benchmark indexes in the region declined, except in Indonesia, Vietnam and Thailand. China's CSI 300 Index, the world's worst performer this year, was little changed.

BHP Billiton Ltd., the world's No. 1 mining company, paced declines by commodity stocks after gold dropped for a fifth day in Asia and copper traded near a six-month low.

JPMorgan's Writedown

U.S. stocks declined for the first time in three days yesterday, with the Standard & Poor's 500 Index dropping 1.2 percent, as JPMorgan Chase & Co. fell the most since 2002. The bank helped push global subprime losses over $500 billion with a $1.5 billion writedown on mortgage-backed securities. S&P futures were little changed at 1,291.20.

Japan's economy contracted 0.6 percent last quarter, the government said today, bringing the country to the brink of its first recession in six years, as exports fell and consumers spent less. The GDP report also showed housing investment dropped 3.4 percent last quarter, compared with expectations for an increase.

Mitsui Fudosan, Japan's No. 1 developer, fell 3.5 percent to 2,315 yen. Sumitomo Realty & Development Co., the most dependent on housing sales among the nation's three biggest developers, declined 4 percent to 2,145 yen. Condominium builder Joint Corp. slumped 8.1 percent to 240 yen, bringing its loss for the year to 89 percent.

`Unlikely to Recover'

``Demand for new homes has weakened and we believe residential investment is unlikely to recover much further in coming quarters,'' said Hiroshi Shiraishi, an economist at Lehman Brothers in Tokyo.

Telstra lost 4 percent to A$4.32, on course for its largest drop since March 3. Profit rose 13 percent in the six months ended June 30 to A$1.77 billion ($1.5 billion), less than the median estimate in a Bloomberg survey. Its forecast for an 8 percent increase in earnings before interest and taxes this year trailed estimates compiled by Bloomberg.

Mitsubishi UFJ fell 4.1 percent to 842 yen after announcing a $3 billion takeover bid for the 35 percent stake it doesn't own in UnionBanCal Corp., California's second-largest lender.

Commonwealth Bank of Australia, Australia's No. 1 mortgage lender, lost 1.6 percent to A$43.82 after saying net income rose 6 percent in the six months ended June 30 as bad debts doubled, the slowest pace of growth in four years.

Bad Debts

Trend Micro lost 5.7 percent to 3,500 yen in Tokyo, the biggest drop since March 3. The company yesterday forecast 7.6 billion yen ($70 million) in operating income on sales of 26.4 billion yen in the three months to Sept. 30, missing predictions by Nikko Citigroup Ltd.

BHP dropped 1.9 percent to A$36.51. Fortescue Metals Group Ltd., an iron ore miner controlled by Australia's richest man Andrew Forrest, tumbled 5.8 percent to A$7.12, the lowest level since April 22. Mitsubishi Corp., which generates more than half its profit from commodities trading, lost 3.9 percent to 2,825 yen, a level not seen since March.

Gold fell 1.7 percent yesterday for an eighth day of declines in New York, the longest losing streak since May 2001, and copper dropped to a six-month low. Oil slid below $113 a barrel during trading yesterday for the first time since May 2 and has lost 22 percent from a July peak.

To contact the reporter for this story: Patrick Rial in Tokyo at prial@bloomberg.net; Junko Kikkawa in Tokyo at jkikkawa@bloomberg.net.