Nov. 2 (Bloomberg) -- Asian stocks fell the most in more than two months, led by financial shares, on concern Citigroup Inc. may be short of capital, renewing speculation losses from U.S. subprime loans will reduce profits.

Mitsubishi UFJ Financial Group Inc., Japan's largest bank, slumped 6 percent, while DBS Group Holdings Ltd., Singapore's biggest lender, slid the most in 10 weeks. Toyota Motor Corp. and Hon Hai Precision Industry Co. led exporters lower after U.S. consumer spending rose less than forecast.

``We're seeing real potential for the world's largest economy to slow significantly and that affects everyone,'' said Angus Gluskie, who helps manage the about $500 million at White Funds Management in Sydney. ``Earnings across the board are not going to be very good, particularly for financials.''

Telecom Corp., New Zealand's No. 1 phone company, declined on its lower profit forecast. Korea Exchange Bank dropped after missing analysts' earnings estimates.

The Morgan Stanley Capital International Asia-Pacific Index lost 2.2 percent to 168.56 as of 7:02 p.m. in Tokyo, its biggest drop since Aug. 17. The benchmark has risen 0.3 percent this week. The Nikkei 225 Stock Average slid 2.1 percent, while Taiwan's Taiex index fell the most in 11 weeks. Other markets retreated, except India, Indonesia and Sri Lanka. The Philippines was closed for a holiday.

The Standard & Poor's 500 Index and Dow Jones Industrial Average slumped 2.6 percent yesterday, erasing about $369 billion of market value. Financial shares led declines.

Shares Tumble

Analysts at CIBC World Markets said investors should sell shares of Citigroup, the largest U.S. bank, because the company may be unable to pay its dividend unless it sells assets. Morgan Stanley and Credit Suisse Group also cut their ratings on the stock. Citigroup spokesman Michael Hanretta said he couldn't comment on speculation about dividend changes or asset sales.

``The subprime woes aren't over yet and we'll probably only see the full impact next year,'' said Christopher Wong, who helps manage $50 billion at Aberdeen Asset Management in Singapore. ``Banks are coming to realize that they need to be more conservative, particularly in the subprime side.''

Mitsubishi UFJ dropped 6 percent to 1,052 yen, its biggest slide since Oct. 16. The lender and six other Japanese banks as of Aug. 28 had reported losses of 18.7 billion yen ($160 million) linked to investments backed by subprime loans. Mizuho Financial Group Inc., Japan's second-largest bank, lost 5.8 percent to 607,000 yen.

DBS Group lost 4.4 percent to S$21.60, the most since Aug. 21. The bank on Oct. 26 reported a S$42 million ($29 million) loss on collateralized-debt obligations held by an investment vehicle.

Earnings `Shock'

Macquarie Bank Ltd., Australia's largest investment bank, slid 3.2 percent to A$82.30. The slump in U.S. subprime mortgages contributed to the value of a fund sliding 27 percent in July, Macquarie said on Sept. 1.

The downgrades sent Citigroup's shares 6.9 percent lower, the most since 2002. Citigroup reported $6.5 billion in writedowns and losses from credit markets in the latest quarter.

Credit Suisse, Switzerland's second-largest bank, also said yesterday it had $1.9 billion of writedowns due to turmoil in credit markets, which contributed to a 31 percent drop in third- quarter net income.

Merrill Lynch & Co. reached agreements with hedge funds that may have been intended to postpone the effect of losses linked to risky mortgage-backed securities, the Wall Street Journal reported, citing people close to the matter. A Merrill spokeswoman told the paper in a statement the company didn't comment on specific transactions and that it was confident in the appropriateness of its valuations, the paper said.

Toyota, Exporters

Woori Finance Holdings Co., South Korea's third-largest lender by market value, lost 5.6 percent to 17,700 won. Hyundai Securities Co. cut the stock to ``marketperform,'' from ``buy.'' Third-quarter earnings were a ``shock,'' partly on investments in mortgage-linked securities, the brokerage said in a report.

Exporters fell after a report showed U.S. consumer spending rose 0.3 percent in September, lower than the 0.4 percent increase forecast by economists. The Institute for Supply Management's factory index fell to 50.9 in October, the lowest in seven months, and a greater decline than had been estimated.

Toyota, Japan's largest automaker, lost 4 percent to 6,480 yen. The company generated about a third of its fiscal 2006 revenue in North America. Hon Hai, the world's largest contract electronics manufacturer, dropped 5.9 percent to NT$225.

``The outlook for the U.S. economy remains gloomy,'' said Yu Reming, who helps manage $1.3 billion at Entrust Investment Trust Corp. in Taipei. ``Export-oriented companies will suffer from weaker consumer demand.''

Slowing Revenue Growth

Taiwan Semiconductor Manufacturing Co., the biggest supplier of made-to-order chips, fell 4.1 percent to NT$61.60. The company makes about three quarters of its sales from U.S. buyers. Li & Fung Ltd., a Hong Kong trading company that sells goods to Wal- Mart Stores Inc., slid 4.6 percent to HK$37.45.

New Zealand's Telecom slid 2.6 percent to NZ$4.17. The company forecast full-year profit will fall as much as 18 percent as government regulation and increased competition slows revenue growth.

Korea Exchange Bank slid 3.1 percent to 14,200 won after reporting third-quarter net income of 194.4 billion won ($214 million). Profit missed the 246 billion won estimate of analysts in a Bloomberg survey because of tighter profit margins and higher provisions for bad loans.

Citic Securities Co., Asia's largest brokerage, rose by the 10 percent daily limit to a record 116.52 yuan, resuming trading after a nine-day suspension. Bear Stearns said Oct. 22 that Citic Securities will spend $1 billion to obtain the equivalent of 6 percent of its shares, while it will invest the same amount in Citic.

Citic Securities Co. (600030 CH)
DBS Group Holdings Ltd. (DBS SP)
Hon Hai Precision Industry Co. (2317 TT)
Korea Exchange Bank (004940 KS)
Li & Fung Ltd. (494 HK)
Macquarie Bank Ltd. (MBL AU)
Mitsubishi UFJ Financial Group Inc. (8306 JT)
Mizuho Financial Group Inc. (8411 JT)
Taiwan Semiconductor Manufacturing Co. (2330 TT)
Telecom Corp. (TEL NZ)
Toyota Motor Corp. (7203 JT)
Woori Finance Holdings Co. (053000 KS)

To contact the reporter for this story: Patrick Rial in Tokyo at prial@bloomberg.net.

Last Updated: November 2, 2007 06:03 EDT