Asian Stocks Drop on Inflation, Credit Loss Concerns; BHP Rises

By Patrick Rial and Ian C. Sayson

Aug. 20 (Bloomberg) -- Asian stocks declined, sending the region's benchmark index to the lowest since July 2006, on concern U.S. inflation is accelerating and credit-related losses at financial companies will increase.

Toyota Motor Corp., the world's No. 2 automaker, dropped 2 percent, after U.S. producer prices climbed the most since 1981. James Hardie Industries NV, the biggest seller of home siding in the U.S., tumbled 9.4 percent after profit plunged. Mitsubishi UFJ Financial Group Inc. led a decline among banks after JPMorgan Chase & Co. estimated Lehman Brothers Holdings Inc. will post a $4 billion writedown.

``The high uncertainty in the U.S. financial sector is closely tied to housing, consumption and the total economy,'' said Beat Lenherr, who oversees more than $20 billion of assets as Singapore-based chief global strategist at LGT Capital Management. ``We remain cautious to bearish on Asia.''

The MSCI Asia Pacific Index lost 0.4 percent to 122.28 as of 10:29 a.m. in Tokyo, extending yesterday's 1.9 percent slide. Two shares dropped for each one that advanced on the benchmark gauge, which is down 22 percent this year as soaring inflation hurt economic growth amid mounting writedowns and losses at the world's largest financial companies.

Japan's Nikkei 225 Stock Average declined 0.3 percent to 12,828.54. Shares climbed in Australia, Malaysia and Singapore, while falling elsewhere in the region. BHP Billiton Ltd., the world's largest mining company, led an advance among commodity producers after gold, oil and copper prices rebounded.

U.S. stocks fell yesterday, with the Standard & Poor's 500 Index losing 0.9 percent. S&P 500 futures were little changed.

U.S. Inflation

Toyota, which makes three quarters of its sales outside Japan, lost 2.2 percent to 4,810 yen. Samsung Electronics Co., the world's biggest computer-memory maker, dropped 1.4 percent to 556,000 won. Brambles Ltd., the world's biggest supplier of the pallets used to move and store goods in factories, lost 9.4 percent to A$7.72 even after reporting a 29 percent rise in full- year earnings.

U.S. producer prices climbed the most since 1981 in July, rising 9.8 percent compared with the previous year. Accelerating inflation may limit the Federal Reserve's ability to lower interest rates even as a housing recession continues to weigh on growth in the world's largest economy.

James Hardie slumped 3.8 percent to A$4.33, set to close at its lowest since July 18. The company reported a 96 percent decline in profit as demand in the U.S. declined.

U.S. housing starts dropped 11 percent last month, the government said yesterday, to the lowest level in 17 years.

More Credit Losses

Mitsubishi UFJ, Japan's biggest lender by value, fell 2.1 percent to 812 yen. Nomura Holdings Inc., the country's largest brokerage, dropped 1.2 percent to 1,465 yen.

Lehman, which is scheduled to report earnings on Sept. 16, may be forced to write down about $4 billion of its $61 billion in mortgage and asset-backed securities, a JPMorgan analyst wrote in a report. Goldman, Sachs & Co. said yesterday American International Group Inc., the biggest U.S. insurer by assets, may have to raise more capital as losses on credit instruments mount.

Some large financial institutions may fail as the credit crisis worsens, Kenneth Rogoff, former chief economist at the International Monetary Fund and an economist at Harvard University, said in an interview yesterday.

``There is increasing uncertainty in the market, and investors will likely take a wait-and-see attitude,'' Hiroichi Nishi, an equities manager at Nikko Cordial Securities Inc., said in an interview with Bloomberg Television in Tokyo.

Shipping lines slumped after the Baltic Dry Index, a measure of shipping costs for commodities, slipped 1 percent yesterday, snapping a four-day winning streak. The gauge has fallen 36 percent from a record high set in May.

Mitsui O.S.K. Lines Ltd., Japan's second-biggest bulk shipper, lost 3.7 percent to 1,246 yen. Kawasaki Kisen Kaisha Ltd., the third biggest, declined 2.7 percent to 765 yen. Hyundai Heavy Industries Co., the world's largest shipbuilder, dropped 3.2 percent to 257,000 won in Seoul.

To contact the reporter for this story: Patrick Rial in Tokyo at prial@bloomberg.net; Ian C. Sayson in Manila at isayson@bloomberg.net.