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Asia Stocks, Oil Fall on China Rates, Obama Concerns; Yen Rises

Jan. 22 (Bloomberg) — Stocks in Asia fell for a fifth day and commodities slumped on concern China will raise interest rates and banking curbs proposed by President Barack Obama will dent the U.S. recovery. The yen rose to a nine-month high against the euro and the risk of corporate defaults climbed.

The MSCI Asia Pacific Index sank 1.7 percent to 121.69 at 2:05 p.m. in Tokyo, set to complete its longest losing streak in six months. Stock benchmarks in Japan, China, Hong Kong and South Korea fell more than 2 percent, while U.S. futures were little changed after declines in New York. Copper dropped for a third day and crude oil slipped below $76 a barrel. The yen rose against all 16 of the most-traded currencies. Indexes tracking Asian credit-default swaps rose the most in almost two months.

Investors are retreating from higher-yielding assets after China’s 10.7 percent growth in the fourth quarter ignited concerns that the nations responsible for leading the world out of a recession will raise borrowing costs to keep their economies from overheating. Obama’s plan to restrict proprietary trading by lenders triggered declines of more than 6 percent in JPMorgan Chase & Co. and Bank of America Corp. yesterday.

“There are some worries about the extent of tightening in China,” said Shane Oliver, head of investment strategy in Sydney at AMP Capital Investors, which oversees $90 billion. “I don’t think they’re seeking to crunch their economy, but obviously the market worries that that will be the case.”

Stocks Slide

Sixteen stocks declined on the MSCI Asia Pacific Index for each one that rose. Japan’s Nikkei 225 Stock Average slumped 2.5 percent, almost erasing this year’s advance. South Korea’s Kospi dropped 2.4 percent, the most since November. Mitsubishi Corp., which gets 39 percent of its sales from commodities, lost 4.8 percent. Samsung Electronics Corp., which relies on China for more than 20 percent of its sales, slid 2.7 percent.

The Shanghai Composite Index fell 2.5 percent, extending the year’s decline to 5.7 percent. China’s central bank will raise interest rates by the end of June and increase banks’ reserve requirements, according to the median forecasts of 17 economists surveyed by Bloomberg after government reports yesterday on gross domestic product and consumer prices.

“We’re looking toward a small correction going forward,” Seth Freeman, chief executive officer at New York-based EM Capital Management, said in a Bloomberg Television interview in Hong Kong. “The change in economic policy should have some impact on the market.”

China Sales

Investors pulled $348 million from China equity funds in the week ended Jan. 20, the biggest drop in four months, according to EPFR Global, in Cambridge, Massachusetts.

Shares of Jiangxi Copper Co. slumped 3.7 percent in Shanghai and Aluminum Corp. of China Ltd. dropped 2.8 percent after they were cut to “sell” from “neutral” at Goldman Sachs Group Inc., which said accelerating inflation has increased risks for the industry. China’s inflation accelerated to 1.9 percent in December, from 0.6 percent the previous month.

Copper for May delivery in Shanghai fell for a third day, dropping as much as 3.1 percent to 59,110 yuan ($8,658) per metric ton in Shanghai. Zinc tumbled 4.8 percent.

Gold for immediate delivery traded at $1,092.15 an ounce, near the low of $1,088.65 yesterday, a level not seen since Dec. 30. The metal is poised for its biggest weekly decline in seven as the dollar’s rebound curbed investor demand.

The Dollar Index, a gauge of the greenback’s strength against the currencies of six major U.S. trading partners, has gained 1.1 percent this week and yesterday reached a four-month high.

U.S. Fuel Demand

Crude oil dropped for a third day to $75.86 a barrel in New York, after the U.S. Energy Department said refineries ran at 78.4 percent of capacity last week, the lowest rate outside the Atlantic hurricane season since at least 1989. Gasoline stockpiles were the highest since March 2008. Fuel consumption in the past four weeks was 1.8 percent less than a year earlier.

The yen advanced to 126.98 per euro in Tokyo from 127.37 in New York yesterday. It earlier reached 126.56, the strongest level since April. Japan’s currency gained to 89.93 per dollar from 90.43 yesterday after reaching 89.79, the highest level since Dec. 18. Korea’s won was the worst performer among the most-traded currencies, falling 1.8 percent against the yen and 1.3 percent versus the dollar.

“Weakness across global equity markets is suppressing risk appetite,” said Mike Jones, a currency strategist at Bank of New Zealand Ltd. in Wellington. “Against this backdrop, investors will continue to sell growth-sensitive currencies in favor of safe-haven currencies like the dollar and the yen.”

‘Double-Dip’ Risk

Japan’s 10-year bonds rose the most in six weeks, pushing the yield on the 1.3 percent note due December 2019 down three basis points to 1.310 percent. Similar-maturity U.S. Treasuries yielded 3.58 percent, about a quarter percentage point less than at the start of the year. A basis point is 0.01 percentage point.

“There’s a possibility of a double-dip recession,” said Hiromasa Nakamura, a Tokyo-based senior investor at Mizuho Asset Management Co., which oversees $21.1 billion. “There is limited room for stocks to rise. Those factors are positive for U.S. Treasuries.”

The Asia-Pacific region’s three benchmark indexes for credit-default swaps were on track for their biggest daily increases since Nov. 27, prices from CMA DataVision show. The indicators rise when the credit outlook deteriorates.

The Markit iTraxx Japan index jumped 9.5 basis points to 142.5 basis points, according to Morgan Stanley prices. The Markit iTraxx Australia index climbed 9 basis points to 93 basis points, according to Citigroup Inc. The Markit iTraxx Asia index of 50 investment-grade borrowers outside Japan increased 6 basis points to 108.5 basis points, Royal Bank of Scotland Group Plc prices show.