Jan. 21 (Bloomberg) -- Asian stocks fell on concern the U.S. will enter a recession and slow global growth. Japan's Nikkei 225 Stock Average dropped to its lowest since October 2005, while Hong Kong's Hang Seng Index plunged the most since the September 2001 attacks.

``It's a contagion effect,'' said Pankaj Kumar, who manages about $460 million as chief investment officer at Kurnia Insurans Bhd. in Petaling Jaya, near Kuala Lumpur. ``Investors may be looking again at their portfolios and reducing their exposure.''

Commonwealth Bank of Australia and National Australia Bank Ltd. dropped after Morgan Stanley said loan losses will increase. Bank of China Ltd. slumped after BNP Paribas SA said it may write down the value of overseas securities by $4.8 billion. Hyundai Heavy Industries Co. fell to the lowest since August on concern new orders will slow.

The MSCI Asia Pacific Index lost 3.7 percent to 141.38 at 6:05 p.m. in Tokyo, heading for its lowest close since Aug. 17. The measure is entering its fourth week of losses, and has declined 18 percent since its Nov. 1 record.

More than eight stocks declined for each that advanced, and all 10 industry groups fell. Asian benchmarks retreated apart from Sri Lanka.

Japan's Nikkei 225 dropped 3.9 percent to 13,325.94, the lowest since Oct. 25, 2005. The measure has retreated 27 percent since its record on July 9, 2007. Singapore's Straits Times Index slumped 6 percent, while India's Sensitive Index tumbled 7.4 percent, the most in the region.

Hong Kong's Hang Seng Index lost 5.5 percent, the biggest fall since the Sept. 11, 2001, attacks and extending its decline from its Oct. 30 high to 25 percent. Air China Ltd., the world's largest carrier by market value, plunged the most on record after China Eastern Airlines Corp. snubbed a bid to buy a stake.

Rio Tinto Plummets

Australia's S&P/ASX 200 Index slumped 2.9 percent, extending its longest sell-off in a quarter of a century. Rio Tinto Group, the world's third-largest mining company, tumbled the most in 10 years after rival BHP Billiton Ltd. failed to make a new offer.

A proposed economic stimulus package by U.S. President George W. Bush of as much as $150 billion failed to lift recession concerns. U.S. equities fell, reversing gains, after Bush's plan was announced on Jan. 18, with the Standard & Poor's 500 Index completing its worst weekly decline in five years.

National Australia, the nation's largest bank, declined 2.9 percent to A$35.20. Commonwealth Bank, Australia's second-largest, dropped 4.6 percent to A$50.78.

Morgan Stanley raised its 2008 forecast for loan loss charges at the country's major banks by 26 percent, analyst Richard Wiles said in a note today, citing a deteriorating global economy and ``the difficulty faced by some companies in refinancing maturing debt.''

Chinese Banks

Bank of China, which has the largest holdings among Asian banks of U.S. subprime mortgages, slid 6.4 percent to HK$3.37. The bank may write down 17.5 billion yuan ($2.4 billion) for the fourth quarter of 2007, and an equal amount for this year, Dorris Chen, a Shanghai-based analyst at BNP Paribas wrote in a note on Jan. 18.

Bigger rivals Industrial & Commercial Bank of China Ltd. fell 7.8 percent to HK$4.86 and China Construction Bank Corp. dropped 7.8 percent to HK$5.65.

``Bank of China is in a worse situation than expected,'' said Zheng Tuo, who manages the equivalent of $790 million at Bank of Communications Schroders Fund Management Co. in Shanghai. ``Investors are worried the woe will spill over to the whole banking sector.''

Hyundai Heavy, the world's largest shipyard, fell 5.8 percent to 335,000 won in Seoul. Keppel Corp., the world's biggest oil-rig builder, declined 5.6 percent to S$10.80.

Oil Spill

Samsung Heavy Industries Co., the world's second-largest shipyard, tumbled 10 percent to 29,300 won, the most since Aug. 16, after South Korean prosecutors blamed it and Hebei Spirit Shipping Co. for the world's worst oil spill in 4 1/2 years.

Toyota lost 3.3 percent to 5,260 yen. Honda Motor Co., which gets 54 percent of its sales from North America, slipped 4 percent to 3,100 yen.

Rio Tinto, defending a hostile $108 billion takeover bid, declined 7.9 percent to A$114.25, its biggest fall since October 1997, after BHP didn't make a new offer. BHP may not make a new offer before the Feb. 6 deadline set by the U.K.'s Takeover Panel, the London-based Times newspaper reported Jan. 19. BHP, the world's largest mining company, slid 4.3 percent to A$33.29.

To contact the reporters for this story: Chua Kong Ho in Shanghai at kchua6@bloomberg.net; Chan Tien Hin in Kuala Lumpur thchan@bloomberg.net

Last Updated: January 21, 2008 05:32 EST