Asian Stocks Gain as Rate Cut Optimism Lifts Banks; Cnooc Falls

By Patrick Rial and Shani Raja

Dec. 18 (Bloomberg) -- Asian stocks advanced to a six-week high, led by financial companies, on speculation lower interest rates and declining oil prices will reduce costs for companies and help revive economic growth.

Sumitomo Mitsui Financial Group Inc., Japan’s third-largest bank, gained 8.5 percent in Tokyo and Mitsui Fudosan Co., the nation’s biggest developer, rose 4.3 percent on speculation the Bank of Japan will reduce borrowing costs tomorrow. Qantas Airways Ltd., surged 7.5 percent in Sydney as oil traded near its lowest level in more than four years. Honda Motor Co. sank 3.5 percent after slashing its earnings forecast.

“Falling interest rates are helping,” Hans Kunnen, head of investment market research at Colonial First State Global Management, which manages $86 billion. “Anything that helps get us back onto a growth path or ease the pain of the slowdown will be good for stocks.”

The MSCI Asia Pacific Index rose 0.5 percent to 90.72 as of 4:46 p.m. in Tokyo, set for its highest close since Nov. 5. About five stocks gained for every three that fell on the index.

The gauge has rallied 21 percent since reaching a five-year low on Nov. 20 as governments from China to the U.S. took steps to protect their economies from the worst financial crisis since the Great Depression. The index is still headed for a record 43 percent annual drop, pushing shares to an average price of 12.9 times estimated earnings, almost a quarter less than at the start of the year.

Japan’s Nikkei 225 Stock Average added 0.6 percent to 8,667.23, led by Mitsubishi UFJ Financial Group Inc. Most markets in Asia advanced, with Thailand rising for an eighth day, the longest winning streak in almost four years. Futures on the Standard & Poor’s 500 Index rose 0.2 percent.

Rate Cuts

The deepening global recession prompted the U.S. Federal Reserve to slash its key interest rate on Dec. 16 to a range of zero to 0.25 percent, a record low. Australia and Hong Kong have cut rates this month to stimulate growth. China’s central bank Governor Zhou Xiaochuan stoked speculation that an interest-rate cut is imminent, reiterating that falling inflation has added pressure for a reduction.

Investors see a 58 percent chance that the Bank of Japan’s policy board will lower the overnight call rate from 0.3 percent at this week’s meeting, according to calculations made by JPMorgan Chase & Co. based on interest-rate swaps trading, up from 20 percent on Dec. 16. The meeting ends tomorrow.

Sumitomo Mitsui, which last week said it plans to sell 538.2 billion yen ($5.8 billion) of preferred securities to bolster its finances, advanced 8.5 percent to 384,000 yen. Mitsui Fudosan rose 4.3 percent to 1,400 yen.

Global Writedowns

Financial companies have disclosed more than $1 trillion of writedowns and credit losses since the collapse of the U.S. subprime mortgage market last year, forcing banks to rein in lending. A lack of access to funds caused the failure of more than 20 listed Japanese developers in 2008.

Mitsubishi UFJ Financial Group Inc., Japan’s largest listed bank, rose 4.4 percent to 542 yen. The lender is likely to see increased loan volumes, Nana Otsuki, an analyst at UBS said. Otsuki upgraded the stock to “buy” from “neutral.”

Qantas rose 7.5 percent to A$2.43, as the declining oil price reduces the cost of jet fuel for airlines. Singapore Airlines Ltd., Southeast Asia’s largest carrier, added 3.8 percent to S$11.54, the fourth-biggest contributor to gains on the Straits Times Index.

Crude oil futures tumbled 8.1 percent to $40.06 a barrel in New York yesterday, the lowest settlement since July 2004, and fell as low as $39.19 today. Prices have plunged 73 percent from a record on July 11.

Woodside, Cnooc

Oil companies fell on concern profits will decline. Woodside Petroleum Ltd., Australia’s second-biggest producer, lost 6.1 percent to A$33.81. Cnooc, China’s largest offshore oil producer, dropped 5.8 percent to HK$7.54.

Honda, Japan’s second-largest automaker, slid 3.5 percent to 1,825 yen. The company slashed its net income forecast for the year ending in March by 62 percent and chopped its third- quarter dividend in half, as the stronger yen crimped profits.

Koichi Sugimoto, an analyst at Merrill Lynch & Co. in Tokyo, cut his recommendation to “underperform” from “neutral.”

Vehicle sales in Japan may fall to the lowest in 31 years in 2009, the Japan Automobile Manufacturers Association said today, as unemployment in a slowing economy keeps drivers away.

“You will inevitably see markets retrace some of the gains they made in this sort of rally over the past month,” said Tim Rocks, an Asian equities strategist at Macquarie Group Ltd. “In the first quarter of next year, we see the main concern as being the reporting season. The speed with which the global economy has deteriorated, there just simply must have been a lot of damage done.”

Production Halted

Auto-parts makers dropped as carmakers slashed production. Aisin Seiki Co., the world’s biggest maker of automatic transmissions, tumbled 5.9 percent to 1,149 yen. JTEKT Corp., which makes power steering, lost 2.7 percent to 621 yen.

Chrysler LLC said yesterday it will shut all of its plants for at least a month as unsold cars and trucks pile up at showrooms. Chrysler and General Motors Corp. have restarted merger negotiations as the U.S. Treasury and White House mull a bailout package for the industry, the Wall Street Journal reported today.

Commonwealth Bank of Australia slumped by a record 9.1 percent to A$26.50 as the nation’s biggest mortgage lender sold stock at a steeper discount than planned.

Shin-Etsu Chemical Co. fell 8.5 percent to 3,780 yen after the Japanese maker of silicon wafers said profit may miss its forecast, citing weak demand for electronic materials and the stronger yen.

Alco Holdings Ltd., a supplier of consumer electronics for customers including Wal-Mart Stores Inc., rallied 20 percent to HK$1.45. Activist investor David Webb named the stock his “Christmas pick” for this year on prospects the company will gain market share as consumers switch to lower-priced products.

To contact the reporter for this story: Patrick Rial in Tokyo at prial@bloomberg.net; Shani Raja in Sydney at sraja4@bloomberg.net.