July 16 (Bloomberg) -- Asian stocks fell, dragging the region's benchmark index to the lowest since October 2006, on concern slowing global growth and widening credit-market losses will hurt earnings.

Mitsubishi UFJ Financial Group Inc., which holds $32 billion of U.S. agency debt, declined as investors lost confidence in a Treasury Department plan to shore up Fannie Mae and Freddie Mac. BHP Billiton Ltd., the world's biggest mining company, dropped to a three-month low after oil and metal prices declined yesterday.

The MSCI Asia-Pacific Index lost 0.6 percent to 129.28 at 12:39 p.m. Tokyo time, extending a two-day, 2.6 percent retreat. The benchmark, set to close at its lowest since Oct. 12, 2006, has lost 18 percent this year on signs the global economy is slowing. Federal Reserve Chairman Ben S. Bernanke said yesterday risks to growth and inflation have risen in the U.S.

``The financial problems are central and everyone in the market is worried about what the eventual policy measures will be,'' said Kenji Tomida, who oversees $16 billion as chief fund manager at T&D Asset Management Co. in Tokyo. ``There won't be any calm until that happens.''

Japan's Nikkei 225 Stock Average lost 0.6 percent to 12,681.17. South Korea's Kospi index fell 1 percent, set to close below 1,500 for the first time since April 2007. China's CSI 300 Index slumped 3.4 percent. Benchmark indexes in most Asian markets fell.

Australia's Woolworths Ltd., the nation's biggest retailer, led gains among suppliers of consumer staples after its fourth- quarter sales grew 7.5 percent.

Fannie Mae, Freddie Mac Drop

U.S. stocks dropped yesterday, sending the Standard & Poor's 500 Index to the lowest since 2005. Fannie Mae and Freddie Mac, the biggest U.S. mortgage lenders, tumbled as lawmakers balked at giving Treasury Secretary Henry Paulson unprecedented power to use government funds to rescue the two companies.

Mitsubishi UFJ fell 1.2 percent to 915 yen, taking a two-day drop to 6.4 percent. Japan's three biggest banks said yesterday that they held a total of 4.7 trillion yen ($45 billion) in debt securities issued by U.S. government-backed mortgage financers including Fannie Mae and Freddie Mac as of March 31.

Cathay Financial Holding Co. slumped 5.5 percent to NT$55.50, set for its lowest close since April 3, 2006. Shares of Taiwan's largest listed financial-services company fell by the daily limit of 7 percent yesterday after Cathay Financial said it held about NT$200 billion ($6.6 billion) of Fannie Mae and Freddie Mac debt.

Global Slump

More than $11 trillion has been wiped off the value of global equities this year as about $415 billion in credit-related losses prolong the global economy's slump and rising commodity prices stoke inflation. A measure of financial companies on MSCI's Asian index has dropped 23 percent this year, the biggest loss among the broader gauge's 10 industry groups.

``The appetite for risk is dwindling,'' said Olan Caperina, who helps manage about $6.7 billion at BPI Asset Management Inc. in Manila. ``Investors are waiting for actions that will be taken to fix Fannie and Freddie, which are important fixtures in the U.S mortgage market.''

In Seoul, Kookmin Bank tumbled 9.7 percent to 51,900 won, set for its lowest close since March 20 and the biggest drop on MSCI's Asian index. The bank, South Korea's largest, said it will buy back no more than 15 percent of its shares, without adjusting the offer price of 63,293 won apiece.

Mitsubishi Corp., Japan's biggest trading company, lost 2.8 percent to 3,180 yen. Inpex Holdings Inc., the country's largest oil explorer, dropped 4.8 percent to 1.2 million yen. Cnooc Ltd., China's biggest offshore oil explorer, declined 5 percent to HK$12.06 in Hong Kong.

Oil, Metals Retreat

Crude oil dropped 4.4 percent yesterday to $138.74 a barrel in New York and was at $138.70 recently. Yesterday's drop was the most since March 19, after Bernanke abandoned his June assessment that the threat of an economic slowdown had diminished.

Economic expansion in China may have slowed for a fourth straight quarter as exports cooled, a report tomorrow may show. The median estimate was for second-quarter gross domestic product to grow 10.3 percent, after gaining 10.6 percent in the previous three months, according to a Bloomberg News survey of economists.

Metal prices fell on concern that slowing economic growth will damp demand. A measure of six metals traded on the London Metal Exchange fell 2 percent yesterday, with zinc tumbling 8.2 percent and copper 1.6 percent.

Sell Commodities Stocks

BHP dropped 0.9 percent to A$39.02. Rio Tinto Group, the world's third-largest mining company, retreated 1.2 percent to A$120.58.

Strategists at Merrill Lynch & Co. and Morgan Stanley said investors should sell commodities stocks because a slowing global economy will cut demand for raw materials such as copper, nickel and corn.

Woolworths climbed 5.1 percent to A$24.65 in Sydney after saying sales in the three months ended June 29 rose to A$11.4 billion ($11.2 billion) from A$9.8 billion a year earlier. Woolworths said full-year earnings rose as much as 25 percent, matching its February forecast.

The stock was the biggest contributor to gains in the MSCI Asia-Pacific Consumer Staples Index, which rose 1 percent. That's the largest advance among the 10 industry groups that make up the broader MSCI regional gauge.

To contact the reporter for this story: Chen Shiyin in Singapore at schen37@bloomberg.net; Patrick Rial in Tokyo at prial@bloomberg.net.

Last Updated: July 15, 2008 23:41 EDT