Asian Stocks Slide Amid U.S. Debt Impasse, China Loan Clampdown

Asian stocks fell for a third day this week as U.S. lawmakers failed to break a deadlock over raising the federal debt limit, and durable goods orders in the world’s biggest economy unexpectedly declined.

Toyota Motor Corp. (7203), the No. 1 carmaker, slid 2.2 percent in Tokyo. Mitsubishi UFJ Financial Group Inc. (8306), Japan’s biggest publicly traded lender, fell 1.5 percent. China Construction Bank Corp. led Chinese lenders lower after the government prohibited banks from renewing loans to local financing vehicles. BHP Billiton Ltd. (BHP), the world’s largest mining company by market value, retreated 2.3 percent in Sydney after oil and metal prices declined. Nan Kang Rubber Tire Co. surged in Taipei after a newspaper said development of land by the company may reap sales of $3.5 billion.

“There’s increased nervousness in equity markets as the debt ceiling deadline draws near,” said Tim Schroeders, who helps manage $1 billion in global equities at Pengana Capital Ltd. in Melbourne. “A de-rating of U.S. debt down the track could reduce monetary liquidity, and some bank earnings may be hurt. Exporter-led earnings are increasingly at risk under such a volatile backdrop.”

The MSCI Asia Pacific Index slid 1 percent to 137.63 as of 7:38 p.m. in Tokyo. More than three stocks fell for each that rose on the gauge. The measure is headed for a decline this week as forecasts for higher earnings at companies from Canon Inc. to Baidu Inc. were overshadowed by concern the U.S. may default on its debt if lawmakers can’t reach an agreement on raising the government’s borrowing limit by Aug. 2

Regional Declines

Japan’s Nikkei 225 (NKY) Stock Average fell 1.5 percent, sliding below the 10,000 yen level for the first time in a week and its biggest drop in over a month. South Korea’s Kospi index declined 0.9 percent and Australia’s S&P/ASX 200 Index slipped 1.6 percent. Hong Kong’s Hang Seng Index (HSI) climbed 0.1 percent, reversing an earlier drop of 1.4 percent, while the broader Hang Seng Composite Index slipped 0.1 percent. China’s Shanghai Composite Index retreated 0.5 percent.

Futures on the Standard & Poor’s 500 Index were little changed after rising as much as 0.6 percent today. The index sank 2 percent yesterday in New York as lawmakers indicated they were no closer to reaching a compromise on the federal debt limit, while a government report showed orders for durable goods unexpectedly decreased.

The S&P 500’s biggest decline since June 1 came as House Speaker John Boehner’s reworked deficit-cutting plan gained support among Republicans, while Senate Majority Leader Harry Reid said his competing proposal to avert a potential U.S. default is the only “true compromise.”

Stocks extended declines after the U.S. Commerce Department yesterday said bookings for goods meant to last at least three years fell 2.1 percent in June after a 1.9 percent gain in May that was smaller than last reported. The median forecast of 76 economists surveyed by Bloomberg News projected a 0.3 percent increase. Demand for business equipment, including machinery and computers, also dropped.

Partial Greek Default

Declines also followed Standard & Poor’s saying that Greece will partially default on its debt once European officials push through a plan that will see bondholders foot part of the bill of a second bailout agreed to last week in Brussels. The rating company also cut its ranking for Greece to CC, two steps above default, from CCC.

A measure of consumer discretionary stocks including exporters such as Toyota and Honda Motor Co. in the Asia-Pacific gauge dropped 1 percent today.

Toyota, which counts North America as its biggest market for sales, slid 2.2 percent to 3,185 yen. Honda, the automaker which receives 83 percent of its revenue abroad, declined 1.9 percent to 3,085 yen in Tokyo. Samsung Electronics Co., a South Korean consumer and industrial electronics maker that gets about 85 percent of its revenue abroad, lost 1 percent to 837,000 won in Seoul. The companies were among the biggest drags on the MSCI Asia Pacific index.

‘Risk Avoidance’

“In addition to the recent debt impasse in the U.S., investors need to be more conscious about the deterioration of the actual economy,” said Mitsushige Akino, who oversees about $600 million in Tokyo at Ichiyoshi Investment Management Co. “Risk avoidance is increasing again.”

The U.S. government may lose its AAA credit rating even if lawmakers reach a plan to avoid a default, Mohamed A. El-Erian, whose Pacific Investment Management Co. is the world’s largest manager of bond funds, said in an e-mail to Bloomberg News on July 24. BlackRock Inc., Franklin Templeton Investments, Loomis Sayles & Co. and Western Asset Management have also said that the nation faces the loss of its top-level grade.

Mitsubishi UFJ Financial Group, the largest-listed Japanese holder of U.S. government debt, according to data compiled by Bloomberg, fell 1.5 percent to 397 yen. Westpac Banking Corp., Australia’s second-largest lender by market value, slumped 1.8 percent to A$20.65. Australia & New Zealand Banking Group Ltd., Australia’s No. 3, lost 1.4 percent to A$20.99.

A Heavy Drag

Banks as a group were the heaviest drags on the MSCI Asia Pacific Index among its 10 industry groups.

Chinese banks fell after commercial lenders were banned from rolling over or renewing their loans to local-government financing vehicles, according to a statement posted on the China Banking Regulatory Commission’s website today.

China Construction Bank slid 0.9 percent to HK$6.30 in Hong Kong. Industrial & Commercial Bank of China Ltd. (601988) slumped 0.5 percent to HK$5.96. Bank of China Ltd. declined 0.7 percent to 3.03 yuan in Shanghai.

Raw-material and energy producers dropped the most among the 10 industry groups on the MSCI Asia Pacific Index after crude oil dropped for a second day in New York, while the London Metal Exchange Index of prices for six metals including copper and aluminum slid 0.2 percent yesterday.

Copper, Oil Falls

BHP retreated 2.3 percent to A$42.03, the biggest single drag on the MSCI Asia Pacific Index. Woodside Petroleum Ltd., Australia’s second-biggest oil and gas producer, slumped 1.6 percent to A$38.92. Inpex Corp., a Japanese energy exploration company, declined 2 percent to 590,000 yen.

Crude oil for September delivery slid as much as 0.6 percent to $96.80 a barrel today, its second day of declines. Copper in London dropped as much as 0.3 percent to $9,750 a metric ton, also falling for a second day.

The MSCI Asia Pacific Index rose 0.9 percent this year through yesterday, compared with a gain of 3.8 percent by the S&P 500 and a drop of 3.2 percent by the Stoxx Europe 600 Index. Stocks in the Asian benchmark are valued at 13.7 times estimated earnings on average, compared with 13.1 times for the S&P 500 and 10.9 times for the Stoxx 600.

Among stocks that advanced, Nan Kang Rubber jumped 6.9 percent to NT$58.70 in Taipei, the biggest gain on the MSCI Asia Pacific Index. The Commercial Times newspaper reported the company’s plans to develop land in the Nan Kang district may reap sales of more than NT$100 billion ($3.5 billion), citing the chairman of Jaysanlyn Group, the sales agent of Nan Kang Rubber.

Hitachi Construction Machinery Co., which makes as well as repairs machinery, jumped 3.8 percent to 1,745 yen. The company boosted its forecast for net income to 3.8 billion yen from 1.5 billion yen for the six months ending Sept. 30, citing higher sales of parts and cost reductions.

Of 143 companies in the Asia-Pacific gauge that have reported net income since July 11, 67 have exceeded analysts’ estimates while 57 have fallen short, according to data compiled by Bloomberg. Overall, earnings have declined 17 percent, the data show.

To contact the reporters on this story: Anna Kitanaka in Tokyo at akitanaka@bloomberg.net; Satoshi Kawano in Tokyo at skawano1@bloomberg.net.

To contact the editor responsible for this story: Nick Gentle at ngentle2@bloomberg.net.

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