March 22 (Bloomberg) -- Taiwan's benchmark stock index had its biggest decline in eight years as the Nationalist Party organized street protests to challenge President Chen Shui-bian's re-election, calling for a recount and a probe into whether he faked an assassination attempt.

The TWSE Index plunged 6.7 percent, the biggest drop since January 1996, to 6359.92 at the close in Taipei. Taiwan Semiconductor Manufacturing Co., the world's largest supplier of made-to-order computer chips, and the 15 other most actively traded stocks fell almost 7 percent, their daily limit.

``Investors will stay out of the market until one side accepts defeat or the court starts the recount process,'' said Yu Reming, who manages the $148 million Balanced Fund at Prudential Securities Investment Trust Co.

The Morgan Stanley Capital International Asia-Pacific Index slid 1.3 percent. South Korea's Kospi and Hong Kong's Hang Seng indexes slumped, and benchmarks fell in all other markets except China and New Zealand. Indonesian markets were shut for a holiday.

Toyota Motor Corp. and Nissan Motor Co. led declines in Japan, after Merrill Lynch & Co. recommended investors lower holdings in automakers as the yen surged against the dollar last week. The Nikkei 225 Stock Average fell 0.9 percent to 11,318.51.

Taiwan Semiconductor sank 6.4 percent to NT$59. United Microelectronics Corp., the world's second-largest supplier of made-to-order chips, slumped 6.9 percent to NT$29.90.

Election Protests

Taiwan's Nationalist leader Lien Chan asked protesters to continue their demonstration until a recount is ordered in an election decided by about 30,000 of 13 million votes cast. The High Court will hear the Nationalists' petition for a recount today, Agence France-Presse reported, citing Justice Wen Yao-yuan.

Lien said Friday's shooting incident, where Chen and Vice President Annette Lu were grazed by bullets during a campaign motorcade was ``suspicious'' and had affected the outcome of the election. Lu denied the shooting was a stunt for sympathy votes.

The TWSE had gained 16 percent in the year before today, partly on expectations that Lien, 67, would win the election and allow Taiwan Semiconductor and other chipmakers to build plants in China for the first time. Chen, 53, has alienated China by promoting the island as a sovereign state. China regards Taiwan as a renegade province.

The TWSE may extend its drop tomorrow because the exchange limits daily declines in shares to no more than 7 percent. Taiwan's dollar slid 0.3 percent, the biggest slide since October.

Government Fund

Taiwan Finance Minister Lin Chuan said the government will discuss whether to activate the National Stabilization Fund to defend stocks if trading becomes ``irrational.''

The government moved to stabilize markets four years ago when Chen's surprise election victory ended five decades of Nationalist rule. The TWSE fell 2.6 percent the Monday after the 2000 presidential election, before the government fund began buying shares, engineering a three-day, 11.7 percent rally.

South Korean stocks slid as political unrest in Taiwan reminded some local investors about the instability of their own government since the impeachment of President Roh Moo Hyun earlier this month. The Kospi index fell 2.2 percent.

Samsung Electronics, the largest company by market value, lost 2 percent to 544,000 won. Hyundai Motor Co., the nation's largest carmaker, dropped 2.1 percent to 51,800 won.

Neighbors

Tens of thousands of people have gathered in Seoul every weekend to take part in a candlelit rally to protest Roh's March 12 impeachment by lawmakers.

``The impact from unstable political situations on a neighboring country's stock market revived concern about the effect of political instability in Korea,'' said Kim Young Joon, who manages $250 million at Samsung Investment Trust Management Co. in Seoul.

Stocks in Hong Kong dropped, dragging the Hang Seng index down 1.9 percent to the lowest since Dec. 30. HSBC Holdings Plc, the world's second-largest bank by market value, shed 1.7 percent to HK$116.50. China Mobile, the world's biggest mobile-phone company by users, dropped 3 percent to HK$22.40.

``There is some uncertainty in Taiwan's political arena and the stability in the greater China region could be affected,'' said Preston Ko, who helps manage $120 million at Bank of Communications in Hong Kong.

Merrill Lynch

Toyota, the world's largest automaker by market value, fell 1.9 percent to 3,690 yen. Each one-yen gain against the dollar costs the company about 25 billion yen ($234 million) in operating profit, Toyota said at its earnings on February.

Nissan, Japan's third-largest carmaker, declined 1.9 percent to 1,160 yen. Nissan gets about 80 percent of its operating profit in North America.

Masatoshi Kikuchi, chief equity strategist at Merrill Lynch's Japan brokerage unit, cut his investment recommendation on automakers and the rubber-products industry to ``neutral'' from ``overweight,'' saying expectations for a weaker yen against the dollar have diminished in the past month.

The yen rose 3.9 percent against the dollar in New York last week, its biggest weekly advance in four years.

``For automakers such as Toyota, the stronger yen may hurt earnings in the coming fiscal year,'' said Hideki Kamiya, who helps manage $1.4 billion at Resona Asset Management Co. in Tokyo.

China Mobile (Hong Kong) Ltd. (941 HK)
HSBC Holdings Plc (5 HK)
Hyundai Motor Co. (005380 KS)
Nissan Motor Co. (7201 JT)
Samsung Electronics Co. (005930 KS)
Taiwan Semiconductor Manufacturing Co. (2330 TT)
Toyota Motor Corp. (7203 JT)
United Microelectronics Corp. (2303 TT)

To contact the reporter for this story: George Hsu in Taipei at georgehsu@bloomberg.net.

Last Updated: March 22, 2004 03:51 EST