Nov. 27 (Bloomberg) -- Asian stocks slumped, dragging the MSCI Asia Pacific Index down the most in eight months, on concern over losses stemming from Dubai’s attempt to reschedule its debt and as the yen strengthened against the dollar.

HSBC Holdings Plc and Standard Chartered Plc sank more than 7 percent in Hong Kong as CLSA Asia-Pacific Markets said Dubai World’s potential default has “negative implications” for the banks. Obayashi Corp. tumbled 8.7 percent in Tokyo after Daiwa Securities Group Inc. said Japanese builders may not receive some revenue from Dubai. Sony Corp., which gets 23 percent of its sales from the U.S., declined 4.4 percent after the dollar fell to a 14-year low against the yen.

The MSCI Asia Pacific Index sank 3.2 percent to 113.78 as of 5:37 p.m. in Tokyo, the biggest drop since March 30. Declines in Asia followed the MSCI World Index’s 1.4 percent slump yesterday. Dubai World, the emirate’s investment company, roiled markets as it sought a “standstill” agreement to delay repayment on much of its $59 billion of debt.

“It is too early to say that this event on its own will prove to be a turning point in the markets, but it does serve as a reminder that dislocations remain in the financial system globally,” said Tim Schroeders, who helps manage $1.1 billion at Pengana Capital Ltd. in Melbourne. “Investors need to remain ever vigilant regarding risk.”

Japan’s Nikkei 225 Stock Average fell 3.2 percent, while Hong Kong’s Hang Seng Index slumped 4.8 percent. China’s Shanghai Composite Index lost 2.4 percent. Australia’s S&P/ASX 200 Index declined 2.9 percent. BHP Billiton Ltd., the world’s largest mining company, slid 3.4 percent in Sydney after oil and copper prices dropped.

Construction Boom

Futures on the U.S. Standard & Poor’s 500 Index sank 2.9 percent. U.S. markets were closed yesterday for the Thanksgiving holiday. Dubai concerns dragged Europe’s Dow Jones Stoxx 600 Index down by 3.3 percent yesterday, the most since April 20.

Dubai, which borrowed $80 billion in a four-year construction boom to transform its economy into a regional tourism and financial hub, suffered the world’s steepest property slump in the global recession. Home prices fell 50 percent from their 2008 peak, according to Deutsche Bank AG.

Finance companies were the biggest drag on the MSCI Asia Pacific Index today. HSBC, Europe’s largest bank, tumbled 7.6 percent to HK$87. Standard Chartered, which makes most of its profits in emerging markets, sank 8.6 percent to HK$185.50 as it was downgraded at CLSA to “underperform” from “buy”.

“Capital raisings cannot be ruled out by either bank due to this, but especially Standard Chartered,” CLSA analysts Daniel Tabbush and Suangsuda Pananiti wrote in a report.

Potential Losses

Goldman Sachs Group Inc. analysts estimated potential credit losses at HSBC will be $611 million, and $177 million for Standard Chartered, according to a report today.

Abu Dhabi Commercial Bank PJSC, the third-largest lender in the United Arab Emirates, may be owed $1.9 billion by Dubai World, people familiar with the situation said.

The worldwide decline in equities spurred by Dubai’s efforts to reschedule its debt is a sign that government spending alone won’t be enough to protect financial markets, according to Arnab Das of Roubini Global Economics.

Governments lowered borrowing costs and introduced spending packages to calm financial markets and revive the global economy following the worst financial crisis since the Great Depression. Writedowns and losses stemming from the crisis have risen to more than $1.7 trillion since 2007, according to Bloomberg data.

The MSCI Asia Pacific Index has climbed 61 percent from a more than five-year low on March 9 amid signs the stimulus measures were reviving economies around the world.

‘Contagion Effect’

Australia & New Zealand Banking Group Ltd. fell 3.6 percent to A$21.19 as it declared “no material exposure” to Dubai World. Westpac Banking Corp., which said it doesn’t expect a material loss, declined 3.8 percent to A$23.13.

“People are worried about the contagion effect from Dubai,” said Nader Naeimi, a Sydney-based strategist at AMP Capital Investors, which holds $75 billion in assets. “Events like this bring back all the bad memories from the global financial crisis. The market has rallied a long way and is very sensitive to any bad news around debt default or financial problems.”

Leighton Holdings Ltd., Australia’s biggest construction company, dropped 4 percent to A$34.77. The company said it’s confident of recovering money owed it in Dubai through its ownership of a 45 percent stake in Al Habtoor Engineering.

Obayashi sank 8.7 percent to 284 yen, while Kajima Corp., Japan’s biggest listed construction company, tumbled 14 percent to 162 yen. Taisei Corp. dived 7.1 percent to 145 yen, and Shimizu Corp. slid 4 percent to 290 yen.

Japanese Exporters

The companies may lose “tens of billions of yen” should they fail to receive revenue from their projects, Hiroki Kawashima, an analyst at Daiwa Securities, said in a Japanese- language report today.

Makers of electronics and cars contributed the most to the Topix index’s drop in Japan as the weaker dollar threatened to reduces the value of overseas sales. Sony, which makes the PlayStation 3 game machine, fell 4.4 percent to 2,265 yen. Honda Motor Co., a carmaker that gets 47 percent of its sales in North America, lost 3.8 percent to 2,660 yen.

The dollar depreciated to as low as 84.83 yen today, the weakest since July 1995, prompting speculation Japan will intervene in markets to preserve the nation’s export-led economic recovery.

Japanese Finance Minister Hirohisa Fujii said today he may contact U.S. and European authorities about currencies if necessary. Fujii said yesterday the government needs to take action on “abnormal” currency movements.

Commodity Producers

BHP fell 3.4 percent to A$40.39. Jiangxi Copper Co., China’s largest producer of the metal, slumped 9.3 percent to HK$18.78 in Hong Kong. In Tokyo, Mitsubishi Corp., which trades commodities, retreated 3.8 percent to 1,879 yen. Sumitomo Metal Mining Co. slid 6.3 percent to 1,378 yen.

Oil futures in New York dropped 6.3 percent in after-hours trading, while copper sank 4.7 percent. The London Metal Exchange Index, a measure of six primary metals including copper and zinc, slid 2.2 percent yesterday, the most since Oct. 30.

“Commodity prices are seen as a barometer of investors’ appetite for risk,” said Juichi Wako, a senior strategist at Tokyo-based Nomura Holdings Inc.

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

Last Updated: November 27, 2009 03:41 EST