Asian Stocks Fall, Snapping Two-Day Rally; Banks, Airlines Drop

By Kyung Bok Cho and Shani Raja

Sept. 23 (Bloomberg) -- Asian stocks fell, snapping a two- day rally, after commodity prices jumped by the most since at least 1956 and concern grew the U.S. financial-industry bailout won't prevent a recession.

Macquarie Group Ltd., Australia's biggest securities firm, fell 4.5 percent after corporate bond risk rose for the first time in three days. China Southern Airlines Co. lost 5.6 percent as oil prices surged, raising fuel costs. China Mengniu Dairy Co. tumbled by a record 60 percent after its products were found to contain a chemical linked to at least four infant deaths.

``The bailout gave the U.S. financial system a cardiac jolt that will prevent it from collapsing, but the economy is still in intensive care,'' said Prasad Patkar, who helps manage the equivalent of $1.8 billion at Platypus Asset Management in Sydney.

The MSCI Asia Pacific excluding Japan Index dropped 2.1 percent to 352.77 as of 4:25 p.m. in Hong Kong. Financial stocks were the biggest contributor to the decline. Stocks fell around the region, except in South Korea, Taiwan and Vietnam. Markets in Japan are shut for a holiday.

China's CSI 300 Index slid 3.8 percent, the most in the region. China Vanke Co., the nation's largest publicly traded developer, led declines after the proportion of households planning to buy a home dropped to the lowest level on record.

Asia's benchmark gauge jumped 8.3 percent in the previous two days after the U.S.'s $700 billion plan to buy toxic debt from banks and tighter regulation of short selling by the U.S., U.K., Australia and Taiwan eased concern more companies will follow Lehman Brothers Holdings Inc. into bankruptcy.

`Second Wave'

U.S. stocks and the dollar tumbled yesterday, with the Standard & Poor's 500 Index losing 3.8 percent, on concern the U.S. bailout plan won't benefit regional banks. S&P 500 futures gained 0.3 percent in after-hours trading.

Macquarie fell 4.5 percent to A$36.10. United Overseas Bank Ltd., Singapore's second-biggest, slid 1.8 percent to S$17.14. HSBC Holdings Plc, the world's second-largest bank by market value, fell 2.1 percent to HK$123.40 in Hong Kong.

A rally in Asian financials will be capped by an ``ongoing slowdown'' and ``a second wave of U.S. problems still ahead,'' Goldman, Sachs & Co. said in a report today. JPMorgan Chase & Co. and Merrill Lynch & Co. advised clients to sell U.S. midsized banks because they won't immediately benefit from the bailout.

The Markit iTraxx Australia Series 9 Index increased 4 basis points to 162.5, according to Citigroup Inc. prices. The index contains credit-default swaps tied to 25 borrowers including Macquarie and Qantas Airways Ltd.

Oil Surge

``Armageddon may have been avoided but there's a realization a couple of years of judgment are still to come,'' said Hans Kunnen, head of investment market research in Sydney at Colonial First State Global Management, which manages about $128 billion.

China Southern, the nation's largest carrier, retreated 5.6 percent to HK$1.52 in Hong Kong. Qantas, Australia's largest, slipped 2.4 percent to A$3.24, the lowest since July 16.

The Reuters/Jefferies CRB Index of 19 raw materials jumped 3.9 percent yesterday, the most since at least September 1956, the earliest data available on the Bloomberg. Commodities rose on speculation resources will provide a safe haven as the U.S. bank rescue plan inflates the budget deficit.

Oil for October delivery surged 17 percent to expire at $120.92 a barrel yesterday as traders stepped up purchases of contracts to offset earlier short sales. Crude oil for November delivery advanced 6.4 percent to close at $109.37 a barrel, and was recently at $108.76 in after-hours trading.

Milk Producers Fall

Newcrest Mining Ltd., Australia's largest gold producer, added 5.3 percent to A$26.84. Gold rose 5.1 percent to $909 an ounce yesterday, extending a rally after its biggest weekly gain in almost nine years, as investors shifted assets into precious metals as a haven from market turmoil and the declining dollar.

The dollar slipped to 105.30 yen from 105.51 yen late in New York yesterday, when it fell 1.8 percent.

Malaysian plantation stocks rose after Aseambankers Bhd. lifted its rating on the industry to ``overweight,'' from ``underweight,'' citing resurging biodiesel demand and a possible rebound in commodity prices. Sime Darby Bhd., the biggest, advanced 3.2 percent to 6.55 ringgit. Kuala Lumpur Kepong Bhd. gained 3.7 percent to 9.90 ringgit.

Mengniu, China's largest milk producer, tumbled 60 percent to HK$7.95 in Hong Kong. Some of its products were recalled after they were found to contain an industrial chemical that has sickened almost 53,000 children in China. Inner Mongolia Yili Industrial Group Co., which is also among the 22 companies found with products containing the chemical melamine, fell by the 10 percent daily limit to 9.93 yuan in Shanghai.

Goldman Sachs cut its recommendations on Mengniu and Yili to ``sell,'' saying dairy sales will slow while the companies increase spending on product promotion and brand building.

To contact the reporter for this story: Kyung Bok Cho in Seoul at kcho7@bloomberg.netShani Raja in Sydney at sraja4@bloomberg.net