Jan. 26 (Bloomberg) -- Asian stocks declined, while the yen and the dollar strengthened against the euro as concerns deepened China will step up measures to slow the world’s fastest-growing major economy. Treasuries extended gains.
The MSCI Asia Pacific Index fell 1.3 percent to 119.92 as of 1:55 p.m. in Tokyo, the lowest since Dec. 30. The Hang Seng Index lost 1.6 percent to 20,269.14, extending its drop from a November high to 12 percent. Standard & Poor 500 Index futures slid 0.9 percent. The yen strengthened to 126.99 per euro from 127.75 in New York yesterday. The dollar advanced to $1.4122 per euro from $1.4151.
Concerns about tighter monetary policy in China have dragged the MSCI World Index down for the past five days. Goldman Sachs Group Inc. downgraded Chinese banks today, while Reuters reported that several China lenders will see an additional increase in their reserve ratios take effect.
“The market is having trouble rebounding from its slump because of all the uncertainties,” said Koji Toda, chief fund manager at Resona Bank Ltd., which holds about $55 billion. “People are still worried, and yet clinging to the hope that policy support will continue to drive the global recovery.”
The Nikkei 225 Stock Average fell 1.1 percent in Japan, where the central bank held interest rates near zero and said it remains committed to fighting deflation. South Korea’s Kospi Index dropped 1.9 percent, while Taiwan’s Taiex Index sank 2.9 percent.
Bank Of China Ltd., the nation’s third-largest lender, declined 2.4 percent to HK$3.72 and Bank of Communications Co. fell 3.4 percent to HK$7.90. Bank of China was cut to “neutral” from “buy,” while BoCom was cut to “sell” from “neutral” at Goldman Sachs.
China Bank Downgrades
“This potential collateral damage due to policy tightening or GDP slowdown is perhaps the hardest to assess, capping valuations until these overhangs are resolved,” Goldman Sachs analysts led by Ning Ma said in a report today.
China is starting to take steps to cool the economy, which grew in the fourth quarter at the fastest pace since 2007. Gross domestic product expanded 10.7 percent while consumer prices rose a higher-than-estimated 1.9 percent in December from a year earlier, according to government data on Jan. 21.
Banks have suspended new lending since Jan. 19 across the country, Dong Tao, a Hong Kong-based economist at Credit Suisse Group AG, wrote in a note to clients. The central bank raised the proportion of deposits banks must set aside as reserves on Jan. 12. Several Chinese lenders will see an additional increase in their reserve ratios take effect today, Reuters reported, citing banking sources it didn’t identify.
China Interbank Rate
Foxconn International Holdings Ltd., which makes mobile phones, fell 9 percent to HK$8.05 in Hong Kong after saying it expects a “significant” decline in profit for 2009.
China’s seven-day repurchase rate, which measures the cost of borrowing money in the country’s interbank market, climbed 30 basis points to 1.64 percent, the biggest increase in a month.
Japan’s currency strengthened versus all 16 of its major counterparts. The yen appreciated to 90.02 per dollar from 90.28 in New York yesterday.
“The market remains very sensitive to signs of China’s tightening, which revive risk aversion and cause the yen to be bought back,” said Masato Mori, senior manager of the business and marketing department at NTT SmartTrade Inc., a unit of Nippon Telegraph & Telephone Corp. “This is part of the Chinese government’s efforts to keep the economy from overheating while securing growth.”
The benchmark 10-year note yield fell four basis points to 3.60 percent, according to BG Cantor Market Data. The 3.375 percent security due November 2019 rose 9/32, or $2.81 per $1,000 face amount to 98 6/32.
Commodity prices fell as concerns about tightening in China raised concern raw-materials demand will drop. Copper declined in London for the first time in three days, dropping 1 percent to $7,390 a metric ton. Aluminum fell 0.4 percent to $2,233.75 a ton, nickel declined 0.9 percent to $18,000 and lead lost 0.5 percent to $2,209.
Crude oil declined 1 percent to $74.52 a barrel in New York after-hours trading.
“China tightening their monetary policy is sending a signal,” said Clarence Chu, a trader with options dealers Hudson Capital Energy in Singapore. “Demand is growing, but not as fast as previously expected.”
The cost of protecting Asian bonds from non-payment increased, according to traders of credit-default swaps. The Markit iTraxx Asia index of 50 investment-grade borrowers outside Japan rose 4 basis points to 105 basis points as of 8:18 a.m. in Singapore, Royal Bank of Scotland Group Plc prices show.
The risk benchmark is on track for its highest close since it climbed to 108 basis points on Jan. 22, according to CMA DataVision prices in New York.