May 20 (Bloomberg) -- Asian currencies weakened, led by Indonesia’s rupiah, after a government report showed Japan’s economy shrank by a record last quarter, reigniting concern that a slump in consumer spending will prolong the global recession.

The Bloomberg-JPMorgan Asia Dollar Index, which tracks the 10 most-active regional currencies, ended a two-day gain on speculation investors will cut their emerging-market holdings in favor of safer assets. A sentiment index issued today in Australia showed pessimists outnumbered optimists for a 16th month in May, while the U.S. Commerce Department reported yesterday housing starts unexpectedly fell.

“The tone of recent data has turned more cautious,” said Patrick Bennett, Hong Kong-based Asia foreign-exchange strategist at Societe Generale SA, France’s third-largest bank. A “correction” in regional currencies is “appropriate” following recent gains, he said.

The rupiah depreciated 0.8 percent, the biggest drop since April 21, to 10,317 per dollar as of 3:16 p.m. in Jakarta. South Korea’s won fell 0.1 percent to 1,250.90 and Singapore’s dollar slipped 0.1 percent to S$1.4627. The Asia Dollar Index declined 0.1 percent to 107.84.

Gross domestic product in Japan contracted 15.2 percent in the three months ended March 31, following a 14.4 percent decline in the previous quarter, the Cabinet Office said. Westpac Banking Corp. and Melbourne Institute said their consumer sentiment index fell 4.3 percent from April to 88.8 points, while the U.S. Commerce Department reported housing starts slid 13 percent last month to an annual rate of 458,000.

Export Demand

The yen declined to 131.07 per euro, from 130.81 yesterday in New York, and against the greenback, Japan’s currency traded at 96.06 versus 95.97.

Malaysia’s ringgit snapped a three-day gain and dropped 0.1 percent to 3.5375 per dollar in Kuala Lumpur, according to data compiled by Bloomberg.

Singapore, the U.S. and Japan were Malaysia’s three-biggest export markets in 2008, accounting for a combined 38 percent of shipments. Singapore’s overseas sales fell for a 12th month in April, easing 19.2 percent, the government said on May 18.

“Some of the rally in Asian currencies looks overdone in the short term,” said Mitul Kotecha, head of global foreign- exchange strategy at Calyon in Hong Kong. “Yesterday’s U.S. housing start numbers dampened sentiment. There’s a risk of consolidation before we see stronger moves going into the second half of the year.”

Intervention Speculation

The ringgit is likely to weaken to 3.6030 by the end of June and the Singapore dollar may drop to S$1.4890 as negative economic data prompt Asian central banks to intervene to weaken their currencies, Societe Generale SA said.

The French bank said policy makers from Taiwan to India may have bought the U.S. currency in the past two days, helping protect exporters as global funds add to their holdings of regional equities. Malaysia will next week report its first drop in gross domestic product since 2001 and Singapore will tomorrow release data showing its economy shrank the most since at least 1975, according to economists surveyed by Bloomberg.

The Korean currency has climbed 28 percent since reaching an 11-year low of 1,597.45 in March as optimism Asia’s fourth- largest economy will weather the global slowdown emboldened overseas funds to snap up the nation’s assets. Vice Finance Minister Hur Kyung Wook said today in a radio interview that the government maintains its forecast that the economy will contract 2 percent this year.

Short-Term Volatility

“The won is set for further gains in the long run though it may be exposed to short-term volatility after a recent rally,” said Sam Hong, a currency dealer with Shinhan Bank in Seoul. “From a demand and supply perspective, the market is pretty much balanced.”

Elsewhere, Taiwan’s dollar strengthened 0.1 percent to NT$32.855 against the U.S. currency before the central bank reports its first-quarter current-account balance today and gross domestic product numbers tomorrow. Thailand’s baht dropped 0.1 percent to 34.45 and the Indian rupee rose 0.4 percent to 47.61. China’s yuan traded little changed at 6.8248 from 6.8246 yesterday.

To contact the reporters on this story: Kim Kyoungwha in Beijing at kkim19@bloomberg.net.

Last Updated: May 20, 2009 04:33 EDT