Asian Stocks Decline, Yen Gains as U.S. Lawmakers Block Rescue

By Kyung Bok Cho and Haslinda Amin

Sept. 30 (Bloomberg) -- Asian stocks dropped, extending the worst global sell-off in 21 years, after the rejection of a $700 billion rescue plan by U.S. lawmakers deepened concern more economies will fall into recession. Japan bonds and the yen rose.

Mitsubishi UFJ Financial Group Inc. and DBS Group Holdings Ltd. led declines in financial shares as money-market rates and corporate bond risk rose. BHP Billiton Ltd. and SK Energy Co. dropped after oil fell more than $10 yesterday, the most in seven years. Regulators in South Korea and Taiwan tightened curbs on short selling to help stem market declines after U.S. stocks tumbled by the most since the 1987 crash.

``There is a massive crisis of confidence,'' said Khiem Do, who helps oversee $9 billion of Asian equities at Baring Asset Management (Asia) Ltd., in an interview with Bloomberg Television. ``There is definitely further downside.''

The MSCI Asia Pacific Index fell 3.4 percent to 107.57 as of 3:28 p.m. in Tokyo, adding to a five-day, 4.9 percent retreat. The measure is set to lose 14 percent this month, the biggest monthly loss since September 1990. Futures on the Dow Jones Euro Stoxx 50 Index, a benchmark for the euro region, slid 2.9 percent.

The yen rose against the euro as investors cut holdings of higher-yielding assets funded in the Japanese currency, trading at 150.06 per euro from 150.38.

The MSCI Asian index has slumped 32 percent this year as credit turmoil caused more than $590 billion in losses and writedowns and the failure of Lehman Brothers Holdings Inc. Citigroup Inc. yesterday agreed to buy the banking operations of Wachovia Corp., a North Carolina lender that collapsed under the weight of overdue mortgages.

Global Rout

Japan's Nikkei 225 Stock Average lost 4.1 percent to 11,259.86, its lowest since December 2004, as the unemployment rate rose to a two-year high in August while industrial production fell at the fastest pace in five years.

Vietnam's VN Index lost 4.7 percent, the most in the region. China's markets are closed this week for holidays.

The Standard & Poor's 500 Index tumbled 8.8 percent yesterday after the U.S. House of Representatives voted down the financial-rescue proposal. The MSCI World Index of 23 developed markets slid 6.9 percent, the biggest loss in 21 years.

``That Congress is reining in the regulators themselves in return for the bailout gives us a glimpse of the post-apocalyptic finance system landscape: highly regulated and very restricted,'' said Michael Auyeung, who manages about $500 million as chief investment officer at Pacific Mutual Fund Bhd. in Petaling Jaya, outside Kuala Lumpur.

South Korea said it will temporarily ban short selling on all stocks, while Taiwan tightened limits on the practice for the remainder of the year. Hong Kong regulators said they will take ``more aggressive'' measures against short selling, in which investors try to profit by betting stock prices will fall.

Banks, Automakers

Mitsubishi UFJ, Japan's largest bank, retreated 4.7 percent to 893 yen. DBS, Southeast Asia's biggest, lost 2.4 percent to S$16.50 in Singapore. Babcock & Brown Ltd., a manager of infrastructure assets, tumbled 17 percent to A$1.95 in Sydney, taking its decline this year to 93 percent, the worst performance on the MSCI Asian index.

Toyota Motor Corp., Japan's largest automaker, fell 4.6 percent to 4,380 yen. Output by the nation's automakers decreased 11 percent in August from a year earlier, the steepest drop since 1998, the Japan Automobile Manufacturers Association said today.

Harvey Norman Holdings Ltd., Australia's biggest furniture and electronics retailer, declined 12 percent to A$3.09 after it said profit for the first two months of the year fell 18 percent.

``People are out there worrying,'' said billionaire Gerry Harvey, chairman of Harvey Norman. ``If the U.S. doesn't turn it around, we are in for a prolonged world recession.''

Default Risks Rise

The cost of protecting Japanese corporate bonds from default increased. The Markit iTraxx Japan Series 10 index rose 17 basis points to 175 basis points at 12:39 p.m. in Tokyo, Morgan Stanley prices show. Credit-default swaps, contracts to protect against or speculate on default, pay the buyer face value if a company fails to adhere to its debt agreements.

Japan's overnight call loan rate rose 10 basis points, or 0.10 percentage point, to 0.5 percent as the Bank of Japan pumped 3 trillion yen ($28.8 billion) into the financial system.

BHP, the world's largest mining company, slipped 9.5 percent to A$31. SK Energy, South Korea's biggest oil refiner, fell 3.3 percent to 89,000 won. Fortescue Metals Group Ltd., an Australian iron-ore producer, slipped 17 percent to A$4.66, down 64 percent from its June 24 peak.

Crude oil slumped 9.8 percent yesterday to $96.37 a barrel in New York, helping send the Reuters/Jefferies CRB Index of 19 commodities to the biggest drop since at least 1956. It recently slid further to $96.14 a barrel today.

Buying Opportunity?

``You're seeing a general flight from commodity players around the world,'' said Sean Fenton, who manages the equivalent of $540 million at Tribeca Investment Partners in Sydney. ``There's a lot of fear and uncertainty in the market.''

Australia's currency dropped as the stocks rout curbed investor appetite for buying the nation's higher-yielding assets. The Australian dollar fell 1.9 percent to 79.93 U.S. cents while New Zealand's dollar slid 0.9 percent to 66.98 cents.

Stock indexes pared earlier declines as S&P 500 futures added 1.3 percent in after-hours trading. South Korea's National Pension Service, the nation's biggest investor with the equivalent of $187 billion in assets, is ``steadily'' buying, said Hong Sung Gi, head of the fund's strategy division.

``It's a good time to pick up value stocks, those with steady cashflows, high dividend yields and good earnings visibility,'' said Masahiko Ejiri, who helps manage about $30 billion at Mizuho Asset Management Co. in Tokyo. ``I am sure the U.S. knows the gravity of the situation and a plan will be reached to save their financial institutions.''

Currency Movements

U.S. notes fell, paring the biggest monthly rally since January, after Treasury Secretary Henry Paulson said he will work to salvage the rescue plan. The yield on the two-year note rose 8 basis points to 1.74 percent as of 7:10 a.m. in London, according to BGCantor Market Data.

Japanese bonds rose, with 10-year yields reaching a two- week low after government reports today showed household spending fell for the sixth consecutive month and unemployment increased more than estimated in August. The yield on the 1.5 percent bond due September 2018 fell 2.5 basis points to 1.46 percent.

``Equities are a disaster, supporting government bond buying,'' said Keiko Onogi, a debt strategist at Daiwa Securities SMBC Co.. ``Flight to quality to the bond market will continue.''

To contact the reporter for this story: Kyung Bok Cho in Seoul at kcho7@bloomberg.net; Haslinda Amin in Singapore at hamin1@bloomberg.net.