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Asian Stocks, Copper, Oil Fall as China Raises Reserve Ratio

Jan. 13 (Bloomberg) — Asian stocks fell the most in more than five weeks, while copper and oil declined after China raised the amount banks have to hold in reserve. Hong Kong’s Hang Seng Index slumped the most in seven weeks.

The MSCI Asia Pacific Index lost 1.1 percent to 125.09 as of 2:10 p.m. in Tokyo, led by banks and commodity producers. Copper dropped 0.7 percent in London and oil declined 1 percent in New York. South Korea’s won fell 0.2 percent to 1,125.45 per dollar, while the Malaysian ringgit sank 0.2 percent to 3.348 on concern China’s policy move will slow growth in Asia.

Investors are getting more skittish after China, which is leading the recovery from the global economic slump, yesterday raised the bank reserve ratio after allowing bill yields to climb in the past week in an attempt to cool inflation and unsustainable gains in property and stock prices. The cost of insuring against defaults in Asia rose and Indonesia scaled back plans to raise funds.

“Anything related to China has been affected,” said Jason Teh, who helps manage $3.2 billion at Investors Mutual in Sydney. “The increasing of the reserve requirements by the Chinese banks is weighing down on commodity-related exposures. Commodities were heavily relying on the China story.”

The MSCI Asia Pacific Index’s drop snapped a three-day, 2.6 percent advance. Futures on the Standard & Poor’s 500 Index added 0.2 percent. The index fell 0.9 percent in regular trading.

Unexpected Decision

China’s Shanghai Composite Index fell 2.3 percent and Hong Kong’s Hang Seng Index dropped 2.2 percent, the most since Nov. 27, as the Chinese central bank’s unexpected move to restrain lending spurred concern that higher interest rates will follow.

The People’s Bank of China yesterday raised the proportion of deposits that banks must set aside as reserves by 50 basis points starting Jan. 18. Economists hadn’t anticipated the move until at least April, the median of 11 forecasts in a Bloomberg News survey showed last week.

“It marks the government’s exit from the overly loose monetary policy put in place last year,” said Yan Ji, who helps oversee $1.2 billion at HSBC Jintrust Fund Management Co. in Shanghai. “We expect a one-off interest-rate rise in the second half of the year.”

Industrial & Commercial Bank of China Ltd., the country’s biggest lender, slid 3.9 percent to 5.13 yuan in Shanghai. and China Construction Bank Corp. fell 3.2 percent to 5.97 yuan.

Baoshan Iron & Steel Co., China’s biggest steelmaker, lost 4.1 percent to 8.63 yuan after Morgan Stanley cut its rating on the Chinese steelmaker to “equal-weight.”

Google Shutdown?

Along with the reserve ratio, the PBOC has increased rates at bill auctions in the past week. The bank guided three-month bill yields higher for the first time in 19 weeks at a Jan. 7 auction and followed with a similar step at a sale of one-year bills yesterday.

Shares of Google Inc., owner of the most popular Internet search engine, dropped 1.1 percent in U.S. after-hours trading. The company said it’s considering shutting its Chinese Web site and offices after discovering a “highly sophisticated” attack last month aimed at gaining access to e-mail accounts of human- rights activists. Baidu Inc., operator of China’s most popular online search engine, rose 7 percent to $413.52 after hours.

Export-related shares around the region fell on concern a slowdown in China demand may hurt sales. LG Electronics Inc., the world’s second-biggest maker of liquid-crystal-display televisions, lost 1.8 percent to 110,000 won. Komatsu Ltd., which gets 18 percent of its revenue from China, dropped 2.5 percent to 2,044 yen in Tokyo.

Commodity Producers

“China is making a faster-than-expected tightening move, and that should have a short-term impact on countries that depend much on the nation for exports such as South Korea,” said Kim Yong Tae, a fund manager at Yurie Asset Management Inc., which manages the equivalent to $2.7 billion in assets.

Shares of Asian commodity producers declined on concern demand in China will decline. Korea Zinc Co., the world’s second-biggest zinc refiner, fell 4.4 percent to 194,000 won. Cnooc Ltd., China’s largest offshore oil producer, sank 4 percent to HK$12.66. Alumina Ltd. slumped 3.3 percent to A$1.895 in Sydney.

Copper for three-month delivery in London fell 0.7 percent to $7,405 a metric ton. Copper for March delivery in New York increased 0.5 percent to $3.3645 a pound, rebounding from a 1 percent drop, as yesterday’s 2.7 percent loss, the biggest for the most active contract since Oct. 1, attracted buyers.

Aluminum for April delivery in Shanghai dropped 3.9 percent, having earlier slumped 5 percent from the previous settlement, the most allowed by the exchange in one day.

Record Crop

Corn for March delivery in Chicago lost as much as 3.4 percent to $3.79 a bushel, the lowest price since Dec. 9. The drop extended a 7.1 percent slump yesterday, the largest for the most active contract since June 30, after the government said U.S. farmers harvested a record crop and projected bigger global inventories before the next harvest. It traded at $3.81 a bushel at 12:15 p.m. Singapore time.

Oil declined for a third a day as the American Petroleum Institute reported an increase in U.S. crude and distillate supplies. Crude oil for February delivery dropped as much as 1.3 percent to $79.78 a barrel in electronic trading on the New York Mercantile Exchange, and was recently at $80.02. Yesterday, the contract fell 2.1 percent to settle at $80.79, the biggest one- day decline since Dec. 9.

Bond risk rose today as investors grew more wary about corporate creditworthiness. The Markit iTraxx Japan index added 4 basis points to 121 basis points, according to Morgan Stanley. The Markit iTraxx Asia index of 50 investment-grade borrowers outside Japan was little changed at 88.5 basis points, having earlier climbed 2.5 basis points, ICAP Plc prices show.

Larger Role

The Markit iTraxx Australia index climbed 4 basis points to 80.5 basis points, Citigroup Inc. prices show. That’s the highest since Jan. 5, according to CMA DataVision.

“The tightening in China is trimming expectations that we have more growth on the road, and markets are going to be less supported,” said Sebastien Barbe, a Hong Kong-based strategist at Calyon. “It means all the support from China in the last year is going to moderate for Asia.”

Dominique Strauss-Kahn, the International Monetary Fund’s managing director, said in September that China will play a larger role in shaping a sustainable recovery from the global recession. The IMF has forecast 9 percent growth for China next year and 6.5 percent for India. The Group of Seven economies are forecast by the IMF to expand just 1.25 percent in 2010.

The difference in yield to own bonds in developing countries instead of Treasuries widened 7 basis points in the past two days to 2.71 percentage points yesterday, according to the JPMorgan Emerging Markets Bond Index Plus.

Indonesia yesterday sold $2 billion in 10-year bonds at a higher yield than the similar-rated Philippine government, even after cutting the size of its issuance and scrapping plans for a 30-year issuance