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Most Asia Stocks Drop on U.S. Budget Even After China PMI

Most Asian stocks fell as Chinese shares retreated even after reports showed manufacturing expanded. Exporters to the U.S. declined as lawmakers debate a budget compromise to avert a so-called fiscal cliff.

Industrial & Commercial Bank of China Ltd. dropped 1.5 percent in Hong Kong, where the Hang Seng Index touched its highest level in more than a year before tumbling. Li & Fung Ltd., a supplier of toys and clothing to retailers including Wal-Mart Stores Inc., slipped 3 percent in Hong Kong. Shimizu Corp., a construction company, advanced 4 percent in Tokyo on speculation a deadly highway-tunnel collapse will reduce opposition to more public works spending.

The MSCI Asia Pacific Index was little changed at 124.79 as of 7:25 p.m. in Tokyo, paring gains of as much as 0.5 percent. About five shares fell for every four that rose on the gauge. The measure advanced 14 percent through Nov. 30 from this year’s low on June 4 as central banks added stimulus to spur growth and data showed China’s slowdown may be ending.

“While there are signs China’s economy might be bottoming, we don’t expect growth to go back to double-digit rates,” said Daphne Roth, Singapore-based head of Asia equity research at ABN Amro Private Bank, which oversees about $207 billion. “We expect no big stimulus or monetary easing from China. The U.S. fiscal cliff is a concern even though we think they’ll eventually come up with some kind compromise.”

U.S. lawmakers are debating the budget to help avert the so-called fiscal cliff. Failure to come up with a budget deal would trigger more than $600 billion of automatic tax increases and spending cuts next year.

Regional Indexes

The Nikkei 225 Stock Average gained 0.1 percent in Tokyo and South Korea’s Kospi Index added 0.4 percent. Australia’s S&P/ASX 200 Index climbed 0.6 percent.

Hong Kong’s Hang Seng Index dropped 1.2 percent after touching the highest intraday level since August 2011, while a gauge of Chinese companies listed in the city dropped 1.5 percent after capping three straight months of advance on Nov. 30. China’s Shanghai Composite Index slid 1 percent.

ICBC, as the world’s largest lender is known, retreated 1.5 percent to HK$5.15. PetroChina Co., Asia’s biggest company by value, fell 1.4 percent to HK$10.24. ZTE Corp., a maker of telecommunications equipment that is the worst performer on the so-called H-share index this year, slid 2.2 percent to HK$11.44.

Futures on the Standard & Poor’s 500 Index rose less than 0.1 percent today. The gauge closed little changed on Nov. 30 and ended 0.5 percent higher for the week as investors watched developments in government budget negotiations amid better-than-anticipated economic reports.

Exporters Tumble

Li & Fung dropped 3 percent to HK$12.38. Man Wah Holdings Ltd., a sofa maker that reports more than 50 percent of revenue from the U.S., dropped 2.6 percent to HK$5.93. Honda Motor Co., the Japanese carmaker that gets about 44 percent of sales from North America, fell 1.2 percent to 2,700 yen in Tokyo. Nintendo Co., the maker of Wii game consoles, slipped 1.8 percent to 9,700 yen in Osaka.

Japan’s utility companies dropped after Goldman Sachs Group Inc. cut investment ratings. Shikoku Electric sank 8.1 percent to 1,030 yen and Kyushu Electric Power Co. declined 7 percent to 718 yen as the U.S. brokerage recommended investors sell their shares.

China’s official manufacturing Purchasing Managers’ Index rose to 50.6 in November, the highest reading in seven months, data released by the National Bureau of Statistics and China Federation of Logistics and Purchasing on Dec. 1 showed. A reading above 50 indicates expansion.

China PMI

A separate survey by HSBC Holdings Plc and Markit Economics that focuses on smaller businesses also showed expansion. Services industries maintained their pace of growth last month, according to a PMI report released today.

The Chinese government may maintain its annual economic growth target at 7.5 percent next year in a sign the new leadership headed by Xi Jinping won’t tolerate a bigger slowdown from the lowest goal since 2004. Nine of 16 analysts surveyed over the past two weeks by Bloomberg News forecast the government will set a goal unchanged from 2012, while six expect a decline to 7 percent and one sees an increase to 8 percent.

Metallurgical Corp. of China climbed 3.6 percent to HK$1.43 in Hong Kong. Huaneng Power International Inc., an electricity producer that gets 84 percent of revenue from China, advanced 3.8 percent to HK$6.82.

Tunnel Collapse

Japanese construction companies advanced after a fatal tunnel collapse raised the outlook for infrastructure spending. Shimizu Corp. climbed 4 percent to 258 yen. Obayashi Corp. advanced 3.1 percent to 401 yen.

“There are expectations Japan’s government will boost infrastructure spending after the tunnel accident,” said Ayako Sera, a market strategist at Sumitomo Mitsui Trust Bank Ltd., which has about $400 billion in assets. “There’s also increasing focus on politicians’ calls for monetary easing.”

The MSCI Asia Pacific Index advanced last week amid optimism U.S. lawmakers would agree on a budget deal that will help avert the fiscal cliff and as the frontrunner to become Japan’s next prime minister this month repeated calls for stimulus. The gauge traded at 14.1 times estimated earnings, compared with 13.6 times for the S&P 500 and 12.5 times for the Stoxx Europe 600 Index.

North Korea Rocket

South Korean defense shares climbed after North Korea said it will fire a long-range rocket. Victek Co., a maker of electronic warfare equipment, jumped by the daily limit of 15 percent to 1,940 won. Firstec Co., a maker of components for helicopters and armored vehicles, climbed 15 percent to 2,135 won.

“Bets that geopolitical risks may rise are driving some defense stocks higher,” Kim Gi Bo, a Seoul-based fund manager at Friend Investment Management, said today. “Previous provocations by the North turned out to have a short-lived and limited impact on our markets and I think this time will be the same.”

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