Asian Stocks Fall as Manufacturing Declines; Woodside, JFE Drop

By Patrick Rial and Liza Lin

Dec. 2 (Bloomberg) -- Asian stocks tumbled, extending a global rout, as a deepening world recession drove down commodity prices and heightened concern company earnings will collapse as manufacturing shrinks.

JFE Holdings Inc., the world's third-largest steelmaker, slumped 9.5 percent in Tokyo as U.S. and European factory output declined. Woodside Petroleum Ltd. lost 10 percent in Sydney after crude sank to the lowest level in three years. Taiwan Semiconductor Manufacturing Co. slid 7 percent after cutting profit targets. Australia's benchmark S&P/ASX 200 Index extended declines to 4.2 percent after the central bank reduced interest rates by one percentage point.

``The world is in recession and earnings will fall next year for most companies the world over including Asia,'' said Hugh Young, managing director at Aberdeen Asset Management Ltd. in Singapore, which oversees about $45 billion in assets. ``Asia is in pretty good shape for surviving, not in great shape for growing.''

The MSCI Asia Pacific Index dropped 4.5 percent to 78.96 as of 3:40 p.m. in Tokyo. About 10 stocks fell for each that rose. The gauge has lost 50 percent this year, the steepest decline on record. Shares now trade at an average of 1.05 times book value, compared with as high as 2.6 times last year.

Japan's Nikkei 225 Stock Average lost 6.4 percent to 7,863.69. Hong Kong's Hang Seng Index fell 4.9 percent. Sun Hung Kai Properties Ltd., the city's second-largest developer, declined 8.4 percent after HSBC Holdings Plc raised rates on new home loans by the most in 10 years.

Most other Asian benchmark indexes retreated. Thai stocks pared gains after the country's constitutional court dissolved the ruling party.

U.S. Futures, Yields

Futures on the Standard & Poor's 500 Index pared gains to 0.2 percent after the Wall Street Journal said Goldman Sachs Group Inc. may post a $2 billion loss for the latest quarter, more than five times analyst estimates.

The S&P 500 dived 8.9 percent yesterday, wiping out half the gains made last week. Investors bought Treasuries, driving yields on two-, 10-and 30-year debt to the lowest on record, after Federal Reserve Chairman Ben S. Bernanke said the central bank may purchase securities.

``Investors are once again becoming terrified of taking risk,'' said Ayako Sera, a strategist at Sumitomo Trust & Banking Co. in Tokyo, which manages $266 billion in assets.

The MSCI World Index of 23 developed markets has tumbled 48 percent this year, wiping out $30 trillion in equity value in the process. The VIX, as the Chicago Board Options Exchange Volatility Index is known, added 24 percent, the biggest gain in five weeks.

The U.S. economy entered a recession last December, the National Bureau of Economic Research, a private, nonprofit group of economists based in Massachusetts, said yesterday.

`Aggressive' Move

Central banks are lowering borrowing costs as demand falls, forcing manufacturers to reduce output and jobs. The Reserve Bank of Australia slashed the overnight cash rate target by a percentage point to a six-year low of 4.25 percent, the fourth reduction in as many months. Most economists surveyed by Bloomberg News expected a three-quarter point cut.

``Whichever way you look at it, economic activity is deteriorating sharply both locally and globally,'' said Nader Naeimi, a Sydney-based strategist at AMP Capital Investors, which oversees $85 billion. ``The RBA was forced to be so aggressive for a reason; that conditions are deteriorating faster than generally expected.''

U.S. manufacturing shrank last month at the fastest pace since 1982, the Institute for Supply Management said yesterday, while a European production index dropped the most since the survey began in 1998. The index is based on a survey of purchasing manufacturers by Markit Economics.

Steelmakers Retreat

JFE slumped 9.5 percent to 2,100 yen and Kobe Steel Ltd., Japan's fourth-biggest steelmaker, retreated 7.4 percent to 150 yen. Aluminum Corp. of China Ltd., the nation's biggest producer of the metal, fell 8.1 percent to HK$3.40 in Hong Kong.

Raw materials producers also tumbled as crude led a collapse in commodity prices. Oil for January delivery sank 9.5 percent to $49.28 a barrel in New York yesterday, the lowest settlement since May 2005 and the biggest drop since Oct. 10. The contract fell as much as 3.5 percent to $47.58 in trading today.

Woodside lost 10 percent to 32.41 yen. Inpex Corp., Japan's biggest oil explorer, slumped 10 percent to 526,000 yen. BHP Billiton Ltd., the world's biggest mining company, slid 9.6 percent to A$27.03. China Petroleum & Chemical Corp., Asia's largest refiner, declined 6.2 percent to HK$4.71 after saying weaker fuel demand will create a ``tough market environment'' in the first quarter of 2009.

Metals Slide

Gold tumbled the most in eight months, dropping 5.2 percent to yesterday. Silver futures fell more than 8 percent yesterday.

The more than 60 percent slide in prices for commodities including oil and copper from July records is causing resource companies to cancel or delay expansion projects.

In Australia, Royal Dutch Shell Plc and Anglo American Plc postponed plans to develop a A$5 billion ($3.2 billion) coal-to- liquids project. Rio Tinto Group, the world's third-largest mining company, dropped 8.7 percent after saying it is pulling out of worker housing contracts pending a spending review.

Itochu Corp., Japan's No. 4 trading house by value, plunged 12 percent to 417 yen, the most in six weeks, after saying it will stop developing an oil and gas field in the Gulf of Mexico because current prices made it unprofitable.

Taiwan Semiconductor retreated 7 percent to NT$37.95. The world's largest maker of chips designed by other companies cut its forecast for fourth-quarter sales and profitability after shipments fell on slowing demand.

Sun Hung Kai retreated 8.4 percent to HK$57.05 after HSBC lifted interest rates on new mortgages by 50 to 75 basis points.

Daiwa Securities Group Inc., Japan's second-largest brokerage, lost 7.9 percent to 458 yen, while Commonwealth Bank of Australia, the nation's largest lender, slumped 5.3 percent to A$31.25. Goldman, the bank that had managed to stay profitable throughout the financial crisis, is likely to report a loss of as much as $2 billion for the quarter ended Nov. 28, the Journal said without saying where it got the information.

To contact the reporter for this story: Patrick Rial in Tokyo at prial@bloomberg.net; Liza Lin in Singapore at Llin15@bloomberg.net