Asia Stocks Fall for Third Week as Government Rescues Pare Loss

By Chua Kong Ho

Sept. 20 (Bloomberg) -- Asia's benchmark stock index fell for a third week after Lehman Brothers Holdings Inc. collapsed and the U.S. took control of American International Group Inc. Declines narrowed on government measures to support markets.

Macquarie Group Ltd., Australia's largest investment bank, and Cathay Financial Holding Co., Taiwan's biggest financial services company, both tumbled 18 percent. Bank of China Ltd. trimmed a weekly loss after the government pledged to buy more of its equity. Newcrest Mining Ltd., Australia's largest gold producer, soared 22 percent as investors sought safety in the precious metal.

The MSCI Asia Pacific Index fell 1.8 percent to 114.15 this week. The gauge fell to a three-year low on Thursday as concerns grew that more financial companies will collapse, before rebounding yesterday as central banks pumped cash into money markets and the U.S. worked on plans to shore up banks and insurers.

``Investors don't believe that things will be over so quickly,'' said Yuuki Sakurai, general manager of financial and investment planning in Tokyo at Fukoku Mutual Life Insurance Co., which manages the equivalent of $54 billion in assets. ``It's like an aspirin for the market; it takes away the headache, but it doesn't cure the problem.''

Lending Seized

Bank lending seized up this week following Lehman Brothers' bankruptcy filing and the U.S. government's takeover of American International Group. The deepening credit crunch resulted in Morgan Stanley tumbling by the most in its history on Sept. 17. Bank of America Corp. bought Merrill Lynch & Co., followed by Lloyd's TSB Group Plc's takeover of HBOS Plc, Britain's biggest mortgage lender, as their plunging shares fanned concern about further bank failures.

``Investors couldn't help but see Lehman's collapse setting off a chain reaction of bank failures worldwide,'' said Mitsushige Akino, who oversees about $468 million at Ichiyoshi Investment Management Co. in Tokyo. ``This is a dangerous state of mind.''

Since the start of 2007, global financial companies have reported more than $510 billion in credit losses and writedowns linked to the slump in the U.S. housing market and slowing economic growth.

Macquarie fell 18 percent to A$35.90, as it battled speculation rising funding costs in the wake of the Lehman collapse will imperil the investment bank. Cathay Financial slumped 18 percent to NT$48.75, as Taiwanese financial institutions and investors reported NT$80 billion ($2.5 billion) tied to Lehman-related securities.

Asian Governments

Asian governments joined their European and U.S. counterparts in support of stock markets.

Japanese equities yesterday surged the most in eight months, cutting by more than half a slump this week as the Bank of Japan pumped more money into the financial system than it has in at least six years. It joined the Federal Reserve in offering financial institutions as much as $60 billion to ease a dollar shortage.

China's benchmark stock index, the world's third-worst performer this year, yesterday rallied the most since the gauge was created in April 2005, erasing most of the CSI 300 Index's losses this week. The government said it will buy shares in three of the largest state-owned banks and scrapped the tax on equity purchases to halt a slide that erased $2.64 trillion of market value.

Earlier in the week, China cut interest rates for the first time in six years and allowed most banks to set aside less reserves.

`Immediate Impact'

``The stimulus package had an immediate impact on restoring investor confidence, which has been crushed by expectations of economic slowdown,'' said Hu Xiaodong, a Shanghai-based fund manager at Martin Currie Investment Management Ltd., which oversees $4 billion in Greater China. ``The government may come up with more loosening measures to boost the economy.''

The rebound left Industrial & Commercial Bank of China Ltd., the nation's biggest lender, down 10 percent for the week, at 3.78 yuan. China Construction Bank Corp. fell 11 percent to 4.19 yuan, while Bank of China Ltd. slid 3.7 percent to 3.36 yuan.

Australia joined the U.S. and U.K. in limiting or banning types of short-selling to shield financial companies from investors bent on driving their shares lower. Thailand's stock exchange said it plans to spend 2 billion baht ($58.3 million) buying shares in the nation's companies, while Taiwan's government said ``conditions are right'' for the state-owned fund to buy equities.

Inner Mongolia Yili Industrial Group Co., a Chinese milk producer which pulled melamine-tainted infant formula from stores shelves nationwide, tumbled 24 percent before its shares were suspended by the stock exchange in Shanghai. Bright Dairy & Food Co., another producer involved in the widening scandal that's claimed at least four deaths and sickened thousands.

To contact the reporter for this story: Chua Kong Ho in Shanghai at kchua6@bloomberg.net