Asia Stocks Decline, Led by Banks, on Interest-Rate Concern

By Masaki Kondo and Ian Sayson

Dec. 17 (Bloomberg) -- Asian stocks fell, led by financial companies, on expectations the U.S. Federal Reserve will raise interest rates next year and after Hong Kong’s central bank said the city is at risk of “sharp corrections” in asset prices.

Westpac Banking Corp. dropped 1.1 percent in Sydney and China Overseas Land & Investment Ltd. lost 1.9 percent in Hong Kong. National Australia Bank Ltd. tumbled 4.7 percent after saying it will sell stock to fund the purchase of AXA Asia Pacific Holdings Ltd. FAW Car Co.’s 4.1 percent paced declines in Shanghai on concern a flood of share sales will divert funds from existing equities. Rio Tinto Group, the second-biggest producer of iron ore, advanced 1.2 percent as the Fed said the economy is improving.

The MSCI Asia Pacific Index dropped 0.8 percent to 118.74 as of 5:32 p.m. in Tokyo, erasing an earlier 0.1 percent advance. The gauge has climbed 32 percent this year on signs government spending and lower interest rates bolstered economies.

“With the improving economic data, investors are looking at the possibility that the stimulus packages will be pulled out earlier than expected and that interest rate increases would follow,” said Marvin Fausto, who helps manage $9.56 billion as chief investment officer at Banco de Oro Unibank Inc. in Manila, the nation’s largest bank by assets. “An early exit and increase in interest rates can throw the ongoing recovery off track.”

The Shanghai Composite Index dropped 2.3 percent, while Japan’s Nikkei 225 Stock Average dipped 0.1 percent.

James Hardie Industries NV, the top seller of home siding in the U.S., rallied 2 percent in Sydney after a U.S. government report showed housing starts increased.

Labor Market

Futures on the Standard & Poor’s 500 Index fell 0.3 percent. The gauge erased most of its advance in New York yesterday after yields on 10-year Treasury notes rose on concern the Fed is preparing investors for higher interest rates next year. The index closed 0.1 percent higher.

“Deterioration in the labor market is abating,” the Federal Open Market Committee said after meeting in Washington. “Household spending appears to be expanding at a moderate rate, though it remains constrained by a weak labor market, modest income growth, lower housing wealth, and tight credit.”

Financial shares as a group were the heaviest drag on the MSCI Asia Pacific Index. Westpac Banking, Australia’s second- largest bank by market value, lost 1.1 percent to A$23.35. Commonwealth Bank of Australia, No. 1, also declined 1.1 percent to A$52.08.

Capital Inflow

National Australia Bank tumbled 4.7 percent to A$26.65 after the lender said it will sell A$1.5 billion ($1.33 billion) in stock next year to help fund the purchase of AXA Asia Pacific’s operations in Australia and New Zealand. AXA Asia surged 13 percent to A$6.37.

The Hang Seng Index fell 1.2 percent, paring its advance for the year to 48 percent, after the Hong Kong Monetary Authority said this year’s equity gains were fueled by an influx of capital and an outflow of funds may bring “volatilities in the real economy.”

China Overseas Land, the Hong Kong-listed developer controlled by China’s construction ministry, fell 1.9 percent to HK$16.64. Sun Hung Kai Properties Ltd., Hong Kong’s biggest developer by market value, slid 2.1 percent to HK$114.70. A gauge of real-estate companies posted the steepest decline among the four industry groups on the Hang Seng today after surging 63 percent this year.

No. 1 Threat

Asset bubbles are the No. 1 threat to financial stability in Asia, Norman Chan, HKMA’s chief executive officer, said this week. More than HK$640 billion ($83 billion) has flowed into the city since October last year, he said.

The MSCI Asia Pacific Index has gained 68 percent from a more than five-year low on March 9, as central banks slashed borrowing costs and government boosted spending worldwide to shore up demand. Dividend yields on the gauge fell to 2.3 percent, nearing the lowest level for at least a year reached on Dec. 8, according to data compiled by Bloomberg.

FAW, which makes passenger cars in China with Volkswagen AG, dropped 4.1 percent to 24.80 yuan after more than tripling this year. Chongqing Changan Automobile Co., the Chinese partner of Ford Motor Co., slid 3 percent to 13.80 yuan. Automakers led declines on the prospect investors will sell this year’s best- performing shares to take part in initial public offerings.

Investors may subscribe to more than 1 trillion yuan ($146.4 billion) worth of shares in 10 IPOs this week, the China Business News said on Dec. 14. China First Heavy Industries today won approval for an IPO to raise some 8.39 billion yuan.

Home Starts

James Hardie gained 2 percent to A$8.10. Builders broke ground on 574,000 homes last month in the U.S., an 8.9 percent annualized increase from the prior month, the Commerce Department said. Consumer prices rose 0.4 percent in November from a month earlier, the Labor Department said.

Rio Tinto advanced 1.2 percent to A$71.65. Inpex Corp., Japan’s biggest oil producer, jumped 3.6 percent to 683,000 yen.

The London Metals Index, a measure of six metals including copper and zinc, climbed 2.3 percent yesterday. Crude oil for January delivery jumped 2.8 percent to $72.66 a barrel, rising the most in a month.

To contact the reporter for this story: Masaki Kondo in Tokyo at mkondo3@bloomberg.net; Ian Sayson in Manila at isayson@bloomberg.net.