Asia Stocks Drop as Europe Crisis Drags on Growth Across Region

By Kana Nishizawa and Norie Kuboyama - Dec 9, 2011 12:44 PM GMT+0700

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Dec. 9 (Bloomberg) -- Kent Smetters, a professor at the University of Pennsylvania’s Wharton School and a former Treasury Department economic policy official, talks about Europe's sovereign debt crisis. He speaks with Susan Li on Bloomberg Television's "First Up." (Source: Bloomberg)

Asian stocks fell for a second day amid economic reports indicating Europe’s debt crisis is contributing to slower growth in Japan, South Korea and China.

Nippon Sheet Glass Co., which counts Europe as its biggest market, fell 4 percent in Tokyo as a summit of European Union leaders in Brussels ended without a “unanimous agreement” to resolve the two-year-old sovereign debt crisis. Renhe Commercial Holdings Co., a Chinese developer of underground shopping centers, sank 11 percent after a report that a customer defaulted on 2 billion yuan ($314 million) in debt. BHP Billiton Ltd. (BHP), the largest global mining company, retreated 3.1 percent in Sydney after commodity prices declined.

The MSCI Asia Pacific Index slid 2 percent to 114.93 as of 2:13 p.m. in Tokyo, the biggest decline in a month. The gauge is headed for a 2.3 percent drop for the week after gaining 8 percent last week. Shares briefly pared losses after European Central Bank President Mario Draghi said the leaders’ summit in Brussels laid the groundwork for a “good fiscal compact,” although it failed to win agreement from all 27 EU members.

“European issues will not be easy,” said Koji Toda, chief fund manager at Resona Bank Ltd. in Tokyo, which oversees the equivalent of $68 billion. For China, “curbing inflation is a good thing, but the reason why inflation is slowing is because the global economy is slowing. If you see that fact, you can’t be so optimistic. Companies depending on China business will likely have an impact from the slowdown.”

All 10 industry groups on the Asia-Pacific measure dropped, with more than six stocks (MXAPJ) falling for each that rose. The gauge’s advance last week was the largest in four years, after China reduced curbs on lending and the Federal Reserve led central banks in cutting funding costs for European lenders.

Regional Indexes

Japan’s Nikkei 225 Stock Average (NKY) sank 1.5 percent after a report showed the nation’s economy grew less last quarter than the government’s initial estimate. South Korea’s Kospi Index (KOSPI) declined 1.8 percent after producer prices rose at the slowest pace in a year in November.

Australia’s S&P/ASX 200 index fell 1.8 percent. The nation’s employers cut 6,300 workers in November from the previous month, a report showed yesterday, missing the 10,000 extra jobs forecast in a Bloomberg survey of 22 economists.

Hong Kong’s Hang Seng Index fell 2.6 percent, while China’s Shanghai Composite Index slid 0.6 percent.

The MSCI Asia Pacific Index (MXAP) declined 15 percent this year through yesterday, compared with a drop of 1.9 percent by the S&P 500 and a 14 percent slump by the Stoxx Europe 600 Index. Stocks in the Asian benchmark are valued at 12.9 times estimated earnings on average, compared with 12.5 times for the S&P 500 and 10.4 times for the Stoxx 600.

U.S. Futures

Nippon Sheet Glass fell 4 percent to 146 yen in Tokyo. HSBC Holdings Plc (5), Europe’s biggest lender by market value, retreated 3.4 percent to HK$60.25 in Hong Kong.

Futures on the Standard & Poor’s 500 Index (SPXL1) were little changed today. The S&P 500 Index of stocks slid 2.1 percent in New York yesterday, snapping a three-day rally, after the ECB’s Draghi said he didn’t signal stepping up government bond purchases.

Draghi’s comments roiled the U.S. market. He denied he had hinted the ECB would automatically support such an initiative with more government bond purchases.

ECB policy makers meeting in Frankfurt yesterday reduced the benchmark interest rate by a quarter percentage point to 1 percent, matching a record low. They also loosened collateral rules so that banks can borrow more from the ECB and announced two unlimited three-year loans. The measures “should ensure enhanced access of the banking sector to liquidity,” Draghi told reporters.

Chinese Inflation

China’s consumer prices rose 4.2 percent in November from a year earlier, slowing from a 5.5 percent gain in the previous month, the National Bureau of Statistics said today. The median estimate of economists surveyed by Bloomberg was for a 4.5 percent increase.

Another report showed China’s producer price index rose 2.7 percent in November from a year earlier, compared with 3.4 percent median estimate by economists.

“The ECB chief saying he didn’t hint at more bond purchases was a disappointment for the market, and it also gave the market a reason to lock in profits after markets gained last week,” said Takashi Aoki, who helps manage 120 billion yen at Tokyo-based Mizuho Asset Management Co. “China’s inflation data signals there will be more easing ahead, which is positive for markets” over the long term, he said.

Oil Prices

BHP Billiton fell 3.1 percent to A$35.86 in Sydney. Cnooc Ltd. (883), China’s biggest offshore oil producer, slid 3.5 percent to HK$14.78 in Hong Kong, while Jiangxi Copper Co. (358), the No. 1 Chinese producer of the metal, retreated 5.6 percent to HK$17.90.

Crude oil prices for January delivery sank 2.1 percent to $98.34 a barrel in New York yesterday, while the London Metal Exchange Index of prices for six metals including copper and aluminum slid 1.1 percent.

Renhe Commercial tumbled 11 percent to 93 Hong Kong cents, the biggest drop in the MSCI Asia Pacific Index. C C Land Holdings Ltd. (1224) dropped 8.9 percent to HK$1.58 in Hong Kong. C C Chairman Zhang Songqiao bought properties from Renhe and defaulted on 2 billion yuan of payments linked to the purchases, the Hong Kong Economic Journal newspaper reported, citing unidentified people. The shares pared their losses after Eva Chan, C C Land’s Hong Kong-based spokeswoman, denied the report.

To contact the reporters on this story: Kana Nishizawa in Hong Kong at knishizawa5@bloomberg.net; Norie Kuboyama in Tokyo at nkuboyama@bloomberg.net

To contact the editor responsible for this story: Nick Gentle at ngentle2@bloomberg.net