Oct. 9 (Bloomberg) -- Asian stocks dropped after North Korea said it carried out a nuclear weapons test. Samsung Electronics Co. and China Mobile Ltd. led declines.

``North Korea is making its neighbors very nervous,'' said Yang Jeung Won, who oversees about $2.1 billion as chief investment officer at Samsung Investment Trust Management Co. in Seoul. ``Investors could take the news as a chance to exit.''

Korean Air Lines Co. slumped on concern political instability will deter travel in the region and as oil prices climbed. The South Korean government raised its military alert level, as North Korea's actions were condemned internationally.

The Morgan Stanley Capital International Asia-Pacific excluding Japan Index slid 0.9 percent to 343.06 at 6:30 p.m. in Hong Kong. South Korea's Kospi index slumped 2.4 percent, its biggest drop since June 13.

The nuclear test prompted a sell-off in regional stock markets. Hong Kong's Hang Seng Index lost 1.3 percent, while Singapore's Straits Times Index dropped 1.1 percent. Markets in Japan and Taiwan were closed today for holidays.

China's stocks climbed to the highest since 2001 in the first day of trading after a weeklong holiday. Markets fell elsewhere in the region, except in New Zealand and Pakistan.

Samsung Electronics, South Korea's largest exporter, dropped 0.9 percent to 642,000 won. China Mobile, the world's largest cell-phone operator by market value, declined 2 percent to HK$56.35.

`Bad for Sentiment'

``The nuclear test, conducted in a scientific method and under specific calculations, did not cause any danger,'' North Korea's Central News Agency said. It was the first time the nation has announced a nuclear test.

China's government called the test a ``brazen'' disregard of international opinion in a statement posted on the Foreign Ministry's Web site, while Japan called for ``decisive action.'' Russian President Vladimir Putin ``definitely denounces'' the test, Interfax reported.

``Everything, North Asia in particular, will feel the brunt,'' said Hans Goetti, a managing director in Singapore at Citigroup Private Bank, which oversees $1.5 billion in Asia. ``It's bad for sentiment.''

Hynix Semiconductor Inc., Asia's second-largest maker of computer memory chips, dropped 4.3 percent to 34,950 won. Hyundai Engineering & Construction Co., South Korea's No. 2 contractor by market value, slumped 6.2 percent to 46,600 won.

Elsewhere in the region, National Australia Bank Ltd., the nation's biggest lender by assets, slid 0.8 percent to A$37.25. Chartered Semiconductor Manufacturing Ltd., which makes chips used in Microsoft Corp.'s Xbox 360 game machine, declined 1.7 percent to S$1.16. Esprit Holdings Ltd., which sells its own brand of apparel, lost 1 percent to HK$71 in Hong Kong.

Airlines Plunge

Korean Air, the nation's biggest airline, slumped 5.6 percent to 32,100 won. Asiana Airlines Ltd., the second largest, lost 4 percent to 6,530 won.

Oil for November delivery climbed as much as 1.2 percent to $60.50 a barrel in after-hours electronic trading on the New York Mercantile Exchange after Saudi Arabia and five other OPEC members agreed to cut output by about 3.4 percent to stem a two- month slide in prices. Crude was recently at $60.06.

``If the situation leads to a war, there will be no demand for travel and that sentiment is dragging airline shares down today,'' said Seo Jin Hee, an analyst at SK Securities Co. Ltd. in Seoul. ``Expectations that oil prices may rebound after hitting the bottom recently is also bad news.''

Singapore Airlines Ltd., the world's second-largest carrier by market value, slid 0.7 percent to S$15.10. Cathay Pacific Airways Ltd., Asia's second-most profitable carrier, fell 1.7 percent to HK$16.46. Air China Ltd., the nation's biggest international carrier, lost 2.5 percent to HK$3.49.

No Big Deal

Mark Mobius, who manages about $30 billion in emerging- market equities at Templeton Asset Management Ltd., said declines in Asia will be short-lived.

``This is actually not a big deal and I don't expect long- term effects for the markets,'' said Mobius. ``This is something I have been expecting for quite some time now.''

Stocks in China advanced on speculation its markets would see an inflow of funds. The Shanghai Composite Index, which tracks yuan-denominated A shares and foreign-currency B shares, rose 1.9 percent to its highest since Sept. 25, 2001.

North Korea's nuclear test ``will make investors pull money out of Japan and South Korea,'' said Paul Pong, managing director at Pegasus Fund Managers Ltd. in Hong Kong. ``That capital will flow into China and Hong Kong.''

China's Brokerages

Citic Securities Co., China's biggest publicly traded brokerage, rose 2.9 percent to 15.41 yuan. Hong Yuan Securities Co., the country's first publicly traded brokerage, added 1.7 percent to 8.29 yuan.

China Life Insurance Group Co. is in talks to buy control of China Galaxy Securities Co., the Shanghai Securities News said, without citing anyone. The report sparked speculation of more strategic investment as China ends the separation between its insurance, banking and brokerage industries.

Cofco International Ltd., the listed unit of China's largest grain trader, surged 13 percent to HK$6.18. Cofco said it will pay HK$5.3 billion ($681 million) to buy the beverage and agricultural units of an affiliated company.

Air China Ltd. (753 HK)
Asiana Airlines Ltd. (020560 KS)
Cathay Pacific Airways Ltd. (293 HK)
Chartered Semiconductor Manufacturing Ltd. (CSM SP)
China Mobile Ltd. (941 HK)
Citic Securities Co. (600030 CH)
Cofco International Ltd. (506 HK)
Esprit Holdings Ltd. (330 HK)
Hong Yuan Securities Co. (000562 CH)
Hynix Semiconductor Inc. (000660 KS)
Hyundai Engineering & Construction Co. (000720 KS)
Korean Air Lines Co. (003490 KS)
National Australia Bank Ltd. (NAB AU)
Samsung Electronics Co. (005930 KS)
Singapore Airlines Ltd. (SIA SP)

To contact the reporter on this story: Darren Boey in Hong Kong at dboey@bloomberg.net.

Last Updated: October 9, 2006 06:32 EDT