Asian Stocks, U.S. Futures Decline on GM Bankruptcy Concern

By Chua Kong Ho and Masaki Kondo

Dec. 4 (Bloomberg) -- Asian stocks fell, erasing earlier gains, and U.S. futures dropped on speculation General Motors Corp. and Chrysler LLC will enter bankruptcy, overshadowing steps by central banks to prevent the global recession from deepening.

Bridgestone Corp., the world's largest tiremaker by sales, tumbled 9.2 percent and Honda Motor Co. slid 6.2 percent. Rio Tinto Group, the world's third-biggest mining company, lost 12 percent on concern it will have trouble refinancing debt and as metals prices slumped. Surfwear maker Billabong International Ltd. plunged 18 percent, the most in five years, after saying first- half earnings will probably decline.

``Regardless of whether the U.S. automakers go bankrupt or stay afloat, they'll have to sack workers,'' said Yoshinori Nagano, a senior strategist at Daiwa Asset Management Co., which manages about $96 billion in Tokyo. ``Should the companies collapse, it may trigger a series of business failures and worsen an already weakened U.S. economy.''

The MSCI Asia Pacific Index fell 0.8 percent to 79.25 at 3:43 p.m. in Tokyo, reversing a gain of 0.8 percent. About five stocks dropped for every three that gained on the measure.

The gauge has lost 50 percent this year, as funding dried up after financial institutions incurred almost $1 trillion in writedowns and credit losses, pushing the global economy into a recession. Credit Suisse Group AG, Switzerland's second-biggest bank, said today it plans to cut 5,300 jobs, or 11 percent of its workforce.

Futures on the Standard & Poor's 500 Index slid 1.1 percent. GM and Chrysler executives are considering accepting a pre- arranged bankruptcy to secure a multibillion-dollar government bailout, a person familiar with internal discussions told Bloomberg News. Auto executives have warned that bankruptcy would lead to liquidation as customers abandoned the companies.

Rate Cuts

Japan's Nikkei 225 Stock Average declined 1 percent to 7,924.24. The nation's businesses reduced investment at the fastest pace in six years last quarter as the global financial crisis darkened the outlook for exports.

China's CSI 300 Index gained 4.1 percent after the cabinet said it may use interest rates to maintain loan growth, while stocks advanced in New Zealand and Indonesia after the two countries' central banks lowered borrowing costs.

Central banks are cutting rates by unprecedented amounts to limit the fallout from the global financial crisis. The Bank of England may reduce interest rates close to zero today, challenging officials to find new tools to head off the threat of deflation, while the European Central Bank will lower the lending rate by at least three quarters of a percentage point.

Money-Market Rates

Even so, Japanese and Australian funding costs gained and South Korean banks paid a record amount to borrow U.S. dollars as concerns about meeting end-of-year cash needs overwhelmed central bank rate cuts and easier access to money.

Bridgestone lost 9.2 percent to 1,356 yen. Mazda Motor Co. lost 6.9 percent to 136 yen. Honda slumped 6.2 percent to 1,685 yen. Honda president Takeo Fukui said his company is studying ways to minimize the effects of any U.S. carmaker failures, including increasing its parts inventory.

Ending production at GM or Chrysler would hurt suppliers that also provide parts to Japanese and European automakers, undercutting a ``whole web'' of jobs that rely on vehicle manufacturing, David Cole of the Center for Automotive Research said last month.

The cost of protecting investors in Asian bonds from default rose after the Federal Reserve said the U.S. economy weakened across all regions as it became tougher to get loans and demand for credit shrank.

Rio Slumps

Rio slid 12 percent to A$32.50. BHP Billiton Ltd. scrapped its bid for Rio Tinto on Nov. 25, citing turmoil in global markets, slumping demand for commodities and Rio's $42.1 billion of debt. Rio's debt levels prompted Moody's Investors Service to review its rating on $5 billion of Rio's debt on Nov. 26.

``All the focus seems to be about the bullet payment of $9 billion due next year,'' said Tim Schroeder, who helps manage A$1.6 billion at Pengana in Melbourne, including both BHP and Rio.

A measure of six metals traded in London dropped for the fifth day, falling 3.9 percent. Zinc declined 2.5 percent, copper 3.1 percent and nickel 3.2 percent.

Nippon Oil Corp. and Nippon Mining Holdings Inc. gained after agreeing to a $7.6 billion merger to cut costs amid plunging demand for fuels. Nippon Oil advanced 3.4 percent to 331 yen, while Nippon Mining gained 11 percent to 285 yen.

``As growth stagnates, companies will be looking to grow through acquisitions or merge for economies of scale,'' said Nicole Sze, a Singapore-based investment analyst at Bank Julius Baer & Co., which manages $350 billion in assets.

Surfwear

Billabong International Ltd. dropped 18 percent to A$8.20, the most since its listing in August 2000. The surfwear maker, which counts the Americas as its largest market, said U.S. customers are deferring deliveries of new clothing as the recession cut demand.

Ito En Ltd. declined 7.3 percent to 1,237 yen, after Japan's largest maker of green-tea beverages reduced its profit forecast on weak sales and higher costs.

Among stocks that gained, Babcock & Brown Ltd. surged 56 percent to A$0.39 after the Australian asset manager received an emergency loan of A$150 million ($98 million) to avoid bankruptcy, giving it more time to sell assets and cut costs.

Crown Ltd., Australia's biggest casino owner, climbed 10 percent to A$5, the most on record, after raising A$1.6 billion ($1 billion) from banks to repay debt due in August 2010.

To contact the reporter for this story: Chua Kong Ho in Shanghai at kchua6@bloomberg.net; Masaki Kondo in Tokyo at mkondo3@bloomberg.net.