Aug. 12 (Bloomberg) -- Asian stocks fell for the first time in three days and Chinese shares entered a so-called correction, amid concern a rally in equities had outpaced earnings prospects.

China Mobile Ltd. dropped 3.8 percent in Hong Kong, as the Chinese commerce ministry said efforts to boost domestic demand can’t completely offset an export slump. Great Wall Motor Co., China’s largest maker of pick-up trucks, declined 10 percent in Hong Kong and Zhuzhou Smelter Group Co. sank 6 percent in Shanghai after they reported lower profits. Ascendas Real Estate Investment Trust slumped 6.3 percent in Singapore after selling shares at a discount.

The MSCI Asia Pacific Index dropped 1.4 percent to 111.19 as of 8:07 p.m. in Tokyo, after a two-day, 1.8 percent gain. The gauge has added 58 percent from a five-year low on March 9 amid speculation of a global economic recovery. Stocks in the measure are valued at an average 24 times estimated profit, higher than the MSCI World Index’s 17 times.

“Given the recent rally, it’s no surprise investors are booking profits,” said Masaru Hamasaki, a senior strategist at Tokyo-based Toyota Asset Management Co., which oversees the equivalent of $13 billion. “After what people are calling the once-in-a-century crisis, there is a sense of exhaustion among investors. Current valuations are prohibitive.”

Japan’s Nikkei 225 Stock Average retreated 1.4 percent. Mitsubishi Corp., a trading company that gets more than a third of its sales from commodities, lost 2.6 percent on lower oil and metals prices. Honda Motor Co. also slipped 2.6 percent in Tokyo, as a weaker dollar hurt the outlook for overseas earnings. The yen rose against all 16 major currencies.

China Export Slump

China’s Shanghai Composite Index sank 4.7 percent, taking its drop from a 15-month high on Aug. 4 to 10 percent. Hong Kong’s Hang Seng Index slumped 3 percent. Hong Kong Exchanges & Clearing Ltd., operator of Asia’s No. 3 stock market, declined 3.9 percent after first-half profit slumped 26 percent.

Australia’s S&P/ASX 200 Index added 0.3 percent, even as the statistics bureau said wage-growth stalled last quarter. Better-than-estimated profit lifted Commonwealth Bank of Australia by 3.2 percent.

Futures on the Standard & Poor’s 500 Index added 0.1 percent. The gauge slid 1.3 percent yesterday as Dick Bove, an analyst at Rochdale Securities, said the recent rally in banking shares was driven by a change in investor sentiment and earnings in the industry won’t improve in the third and fourth quarters.

Lower Profits

China Mobile, the nation’s largest mobile operator, dropped 3.8 percent to HK$87.80. Great Wall slumped 10 percent to HK$7.57. The company’s 36 percent profit decline in the first half came amid rising marketing expenses and falling exports. Hong Kong Exchanges declined 3.9 percent to HK$146.

Dongfeng Automobile Co., which makes light trucks in China with Nissan Motor Co., fell 4.7 percent to 5.04 yuan after sales for the first seven months the year fell 3.8 percent.

Zhuzhou Smelter, China’s biggest producer of refined zinc, lost 6 percent to 13.44 yuan after saying first-half profit dropped 84 percent as demand and prices of lead and zinc fell.

Just 16 percent of the 470 companies in the MSCI Asia Pacific Index that have reported quarterly results in the latest earnings season have missed analysts’ profit estimates, while a third have beaten, according to data compiled by Bloomberg.

Better-than-expected earnings and economic reports worldwide have driven stocks higher since March, lifting the average valuation of the MSCI Asia Pacific’s companies to a four-month high of 25 times estimated profit on July 28. The index has lost 0.6 percent this month.

‘Incredible Run’

“We’ve had an incredible run the last few months,” said Tim Schroeders, who helps manage $1.1 billion at Pengana Capital Ltd. in Melbourne. “We need to see economic growth exceed the improved expectations that have flowed through to the market. Any disappointment will see stock prices fall back significantly from current levels.”

The Shanghai Composite has sunk from its high this month amid speculation the government will curb inflows into a market that had doubled from last year’s low. Reports from China yesterday showed exports dropped in July, lending fell, and investment growth slowed.

Local demand is unlikely “to provide a full remedy for the sharp contraction in external demand,” the Commerce Ministry said in a statement ahead of a briefing in Beijing today.

Sinotrans Shipping Ltd. fell 3.8 percent to HK$3.76. The dry-bulk arm of China’s third-largest shipping group said first- half profit declined 66 percent to $64 million after rates plunged amid rising overcapacity.

Oil, Metals

Ascendas tumbled 6.3 percent to S$1.65. The company said it sold 185 million shares at S$1.63 each, raising S$296 million ($204 million) in net proceeds. The stock last traded at S$1.76 on Aug. 7.

Mitsubishi sank 2.6 percent to 1,922 yen, while Mitsui & Co., a rival trading house, fell 3.7 percent to 1,250 yen. Crude oil dropped for a fourth day with a 1.6 percent decline in New York yesterday. A gauge of six metals in London fell 2 percent.

Aluminum Corp. of China Ltd., the country’s No. 1 maker of the light metal, slid 4.9 percent to HK$9.41. Jiangxi Copper Co., China’s biggest producer of the metal, fell 3.9 percent to HK$17.14.

Honda, which generates 45 percent of its sales in North America, dropped 2.6 percent to 3,040 yen as the stronger local currency threatens to reduce the value of dollar-denominated sales. The yen strengthened against the dollar to as much as 95.47 from 96.81 at the 3 p.m. close of Tokyo stock trading yesterday. Toyota Motor Corp. fell 2.4 percent to 4,030 yen.

“The market’s been riding the wave of better-than-expected corporate profitability,” said Pengana’s Schroeders. “The focus is now turning to ensuring that profits are locked in, as opposed to buying more equity exposure in the hope that markets rise strongly from these prices.”

Commonwealth Bank, Australia’s biggest lender by market value, gained 3.2 percent to A$45.32. The bank posted full-year earnings of A$4.72 billion, compared with the median estimate of eight analysts surveyed by Bloomberg for A$4.64 billion.

Bank of the Ryukyus Ltd., a regional Japanese lender, climbed 5.5 percent to 1,251 yen, after saying first-quarter net income rose 12 percent to 1.28 billion yen.

To contact the reporter on this story: Shani Raja in Sydney at sraja4@bloomberg.net.

Last Updated: August 12, 2009 07:12 EDT