Asian Equities Snap Two-Day Rally as European Banks Rush ECB’s Cash Offer

By Jonathan Burgos and Yoshiaki Nohara - Dec 22, 2011 2:17 PM GMT+0700

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Dec. 22 (Bloomberg) -- Alan Oster, chief economist at National Australia Bank Ltd., talks about Europe's sovereign debt crisis. The European Central Bank will lend euro-area banks a record amount for three years in its latest attempt to keep credit flowing to the economy during the debt crisis. Oster speaks with Rishaad Salamat on Bloomberg Television's "On the Move Asia." (Source: Bloomberg)

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Dec. 22 (Bloomberg) -- Curtis Freeze, founder of Honolulu-based Prospect Asset Management Inc., talks about the outlook for Japan stocks and his investment strategy. Freeze speaks with John Dawson on Bloomberg Television's "First Up." (Source: Bloomberg)

Asian stocks dropped, snapping a two-day rally, as European lenders sought record loans from the central bank and U.S. home sales missed forecasts, damping the earnings outlook for exporters.

Li & Fung Ltd. (494), a supplier of toys and clothes to Wal-Mart Stores Inc., dropped 2.1 percent in Hong Kong. Tokio Marine Holdings Inc. slid 1.7 percent on concern the insurer may be paying too much for a $2.7 billion acquisition. OneSteel Ltd. jumped 10 percent in Sydney after saying it’s not considering a debt or share sale.

“The ECB doesn’t seem to have stepped up to the plate for bond buying, which I think is negative,” said Shane Oliver, Sydney-based head of investment strategy at AMP Capital Investors Ltd., which manages about $100 billion. “At least they are acting as a lender of last resort for banks.”

The MSCI Asia Pacific Index slid 0.5 percent to 112.68 as of 3:26 p.m. in Tokyo, with almost three shares falling for every two that rose. The gauge slid to a three-week low on Dec. 19 after North Korean leader Kim Jong Il died and Fitch Ratings said it may cut credit ratings of European nations. Trading volume was below the 30-day average in all of Asia’s major markets except China, according to data compiled by Bloomberg.

Japan’s Nikkei 225 Stock Average (NKY) fell 0.8 percent before a public holiday tomorrow. South Korea’s Kospi Index lost 0.1 percent. Australia’s S&P/ASX 200 declined 1.2 percent and Hong Kong’s Hang Seng Index slid 0.3 percent. China’s Shanghai Composite Index gained 0.3 percent, reversing losses of as much as 1.9 percent.

Default Risks

Futures on the Standard & Poor’s 500 Index (SPX) lost 0.2 percent today after the gauge added 0.2 percent yesterday, lifted by gains in energy and consumer shares. U.S. equities fell earlier after the ECB offered 489 billion euros ($645 billion) in 1,134- day loans to banks, the most ever in a single operation and more than economists’ estimates. The increased funding sought by lenders may indicate institutions are wary of lending to each other amid a heightened risk of government and bank defaults.

Exporters to the U.S. declined after sales of existing homes in the world’s biggest economy missed economists’ estimates. A report by the National Association of Realtors revised down the number of existing home sales in the U.S. by an average of 14 percent since 2007, indicating the depth of the slump that contributed to the last recession.

Li & Fung dropped 2.1 percent to HK$14.26 in Hong Kong. Nissan Motor Co., which depends on North America for a third of its sales, lost 0.9 percent to 692 yen in Tokyo. Toshiba Corp. (6502), a maker of home appliances, medical equipment and power plants, fell 1 percent to 309 yen.

‘Negative Impact’

The MSCI Asia Pacific Index slumped 18 percent this year through yesterday, heading for its worst performance since 2008. Utilities posted the biggest decline among the 10 industry groups in the gauge as Japanese utilities tumbled after meltdowns at Tokyo Electric Power Co.’s Fukushima Dai-Ichi plant. It was the worst nuclear accident in 25 years.

The regional benchmark index’s drop this year compared with a 1.1 percent decline by the S&P 500 and a 14 percent slide by the Stoxx Europe 600 Index. Stocks in the Asian gauge were valued at 12.7 times estimated earnings on average, compared with 12.6 times for the S&P 500 and 10.3 times for the Stoxx 600, according to data compiled by Bloomberg.

Tokio Marine dropped 2 percent to 1,707 yen after it agreed to buy Delphi Financial Group Inc. for $2.7 billion in cash. acquisition comes amid waning demand in Japan, where the population is declining.

“The premium paid in this acquisition may have a negative impact on the company’s shares in the short term,” Wataru Otsuka, an analyst at Nomura Securities Co. said in a report.

Among stocks (MXAP) that advanced, OneSteel jumped 10 percent to 75 Australian cents, the most on the MSCI Asia Pacific Index. The company said it’s not considering a debt or share sale, rejecting speculation it may need to raise capital. Deutsche Bank AG said last month there’s a “significant risk” the steelmaker may have to raise funds due to a likely breach of financial covenants.

To contact the reporters on this story: Yoshiaki Nohara in Tokyo at ynohara1@bloomberg.net; Jonathan Burgos in Singapore at jburgos4@bloomberg.net.

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