Asian Stocks Have Worst Week Since August; Mitsubishi, BHP Drop

Dec. 14 -- Asian stocks fell, dragging the regional benchmark to its worst week since August, after Japanese business confidence dropped more than economists had estimated and on speculation interest rates in China will rise.

Mitsubishi Estate Co. declined after the Japanese real- estate industry reported the largest drop in confidence among non-manufacturers in the quarterly Tankan survey. Industrial & Commercial Bank of China Ltd. paced a slide among Chinese shares in Hong Kong. BHP Billiton Ltd. fell after metals prices slid.

``Investors seem to be throwing in the towel,'' said Shane Oliver, who helps manage the equivalent of $113 billion at AMP Capital Investors in Sydney. There are ``also uncertainties about the outlook for China with authorities there seeming determined to slow the economy,'' he said.

The MSCI Asia Pacific Index fell 1.3 percent to 157.56 as of 7:05 p.m. in Tokyo. The benchmark has declined 4.2 percent this week, its worst weekly loss since the five days to Aug. 17. Nine of the 10 industry indexes on the measure slid.

Japan's Nikkei 225 Stock Average fell 0.1 percent to 15,514.51. Mitsubishi UFJ Financial Group Inc. led declines among Japanese banks after Morgan Stanley cut its earnings estimates for the country's three largest listed banks.

Benchmarks dropped in all other Asian markets, apart from New Zealand, China and Thailand. European stocks yesterday declined the most in three weeks, with the Dow Jones Stoxx 600 Index losing 2.4 percent.

Business Confidence

Mitsubishi Estate slid 4.8 percent to 2,600 yen, extending its losses in the past three days to 13 percent. Mitsui & Co., Japan's second-biggest trading company, lost 4.7 percent to 2,320 yen.

The Tankan index of manufacturer sentiment fell to 19 points in December from 23 in September, the Bank of Japan said today in Tokyo. The median estimate of economists surveyed by Bloomberg News was for a reading of 21. A positive number means optimists outnumber pessimists.

Industrial & Commercial Bank, the world's largest bank by market value, lost 3.4 percent to HK$5.72. China Life Insurance Co., the nation's biggest insurer, declined 1.9 percent to HK$40.65.

``Several mainland Chinese officials have telegraphed the fact they are going to toughen monetary policy to fight inflation,'' said Andrew Clarke, a sales trader at SG Securities Hong Kong Ltd.

BHP, the world's biggest mining company and Australia's largest oil producer, dropped 2.8 percent to A$42.05. Rio Tinto Group, the world's third-biggest and the target of a BHP takeover, lost 2.8 percent to A$137.24. Inpex Holdings Inc., Japan's largest oil explorer, slid 3.3 percent to 1.16 million yen.

Metals, Oil

A measure of six metals traded on the London Metal Exchange dropped 2.5 percent yesterday. Copper fell 3.1 percent while nickel declined 2.3 percent.

Crude oil futures dropped 2.3 percent to $92.25 a barrel in New York yesterday. The contract was recently at $92.85 in after- hours trading.

Mitsubishi UFJ, Japan's No. 1 lender by market value, retreated 4.8 percent to 1,074. Sumitomo Mitsui Financial Group Inc., the second largest, slid 3.1 percent to 857,000, its lowest close since Nov. 22. Mizuho Financial Group Inc., the third biggest, fell 4.9 percent to 561,000.

Morgan Stanley lowered its earnings estimates for the three banks on the view that a mild recession next year in Japan will keep profit growth low.

HSBC Holdings Plc cut its recommendation on Mitsubishi UFJ to ``underweight'' from ``overweight,'' citing the company's lack of disclosure regarding securities investments.

BHP Billiton Ltd. (BHP AU)
China Life Insurance Co. (2628 HK)
Industrial and Commercial Bank of China Ltd. (1398 HK)
Inpex Holdings Inc. (1605 JT)
Mitsubishi Estate Co. (8802 JT)
Mitsubishi UFJ Financial Group Inc. (8306 JT)
Mizuho Financial Group Inc. (8411 JT)
Mitsui & Co. (8031 JT)
Rio Tinto Group (RIO AU)
Sumitomo Mitsui Financial Group Inc. (8316 JT)

China Factory Spending Growth Slows on Lending Curbs (Update3)

Dec. 14 -- China's factory and property spending growth slowed, a further sign that government lending curbs may be starting to cool the world's fastest-growing major economy.

Fixed-asset investment in urban areas rose 26.8 percent in the first 11 months from a year earlier, the statistics bureau said today, after gaining 26.9 percent through October. Economists calculated November's increase at about 26 percent, down from October's 30.7 percent.

Industrial output grew at the year's slowest pace in November, outstanding loans rose the least in eight months and export growth stayed at reduced levels. Those signs may do little to ease central bank concern the economy is overheating after inflation surged to an 11-year high and the trade surplus swelled.

``It's a slight moderation in connection with the tightening efforts but growth is still very strong,'' said David Cohen, an economist at Action Economics in Singapore. ``Another interest- rate increase before the end of the year would be consistent with avoiding overheating.''

The yuan traded at 7.3729 at 4:31 p.m. after closing at 7.3692 yesterday. The yield on a 15-year bond was little changed at 4.72 percent.

The median estimate of 18 economists surveyed by Bloomberg News was for a 26.6 percent increase in 11-month investment.

Nuclear Reactors

Spending through November rose to 10.1 trillion yuan ($1.4 trillion), more than the size of Canada's gross domestic product last year. China's projects include plans to become the world's biggest producer of nuclear reactors, building about 30 by 2020.

Investment in the oil and natural-gas industries rose 9.6 percent through November, a slower pace than the 12.3 percent gain in the first 10 months. Railways and transportation also had weaker growth.

Spending on real estate development rose 31.8 percent after a 31.4 percent increase. Investment in new projects climbed 28 percent, up from the previous 26.5 percent.

``It's too early to call it a slowdown -- we need three months of data,'' said Stephen Green, senior economist at Standard Chartered Bank Plc in Shanghai. He predicts three interest-rate increases next year, more investment controls, and a faster pace of yuan appreciation that will slow inflows of cash from exports.

Investment accounted for 42.5 percent of China's gross domestic product in 2006, compared with 24 percent in Japan, 20 percent in the U.S. and 17 percent in Germany. The number of new projects rose by 24,124 from a year earlier to 211,127 in the first 11 months, the National Bureau of Statistics said today.

Exports, Industrial Production

India's gross fixed capital formation, or the total investment by government and companies in plant and machinery, rose 15 percent to 2.36 trillion rupees ($60 billion) in the quarter ended Sept. 30 from a year earlier. The nation has the second-fastest growing major economy.

China's spending on fixed assets is ``too rapid'' and has ``become a prominent problem that threatens economic stability,'' the State Council, or cabinet, said last month. The pace has rebounded this year from the 24.5 percent increase in 2006 and means that new factories may come on stream just as global growth slows, leaving overcapacity, falling profits and bad loans.

More than two-thirds of Chinese enterprises say their industries have overcapacity, the state-run Xinhua News Agency reported Nov. 11, citing a government survey. Textile, pharmaceutical and equipment manufacturing were cited as examples.

Slower Exports

Export growth slowed to 22.6 percent for the past four months from the 29 percent pace through July because of cuts to tax incentives, weaker U.S. demand, and higher prices due to currency gains and production costs.

Stock market gains have also cooled with a 15 percent fall in the CSI 300 Index from an Oct. 16 record. The benchmark is still up more than 140 percent this year.

The government is targeting inflation that surged to 6.9 percent last month and overheating as the biggest threats to an expansion that has been the biggest contributor to global economic growth in 2007.

China has raised the key one-year lending rate to a nine- year high of 7.29 percent, clamped down on bank lending, tightened project approvals, imposed environmental restrictions and limited land use to curb investment.

Industrial output grew 17.3 percent in November from a year earlier. Outstanding local-currency loans climbed 17 percent.

Peru's Garcia Woos U.S. Investors as Trade Agreement Completed

Dec. 14 -- Peruvian President Alan Garcia urged American companies to invest in his country, saying that a free- trade agreement with the U.S. to be signed today will guarantee the safety of their ventures.

``The company that acts today will reap three times as much as the one who invests tomorrow,'' Garcia told the U.S. Chamber of Commerce in Washington. ``We are at the takeoff point.''

Garcia and U.S. President George W. Bush are to sign a free- trade agreement between the two countries at a White House ceremony this afternoon. That deal will eliminate tariffs and set rules governing investments between the two nations.

The completion today was welcomed by companies such as Caterpillar Inc., which said the agreement could lead to a boom in U.S.-made mining equipment being sent to the Andean nation.

``It's a big market and getting bigger,'' said Tom Gales, vice president for Latin America at Caterpillar.

Oil, mining, agriculture, fishing and manufacturing firms should now flock to his nation of 29 million people, which has a per-capita income of less than $3,000 a year, Garcia said. ``Come and open your factories in my country so we can sell your own products back to the U.S.,'' Garcia told the business executives today.

Negotiations for the deal began in 2003, and it took two years to get the U.S. Congress to approve the accord from an initial agreement in December 2005. Garcia was forced to renegotiate the agreement this year to meet demands by Democrats in Congress to toughen labor and environmental rules and roll back provisions guaranteeing patents for medicines.

Democrats Skeptical

The Peru agreement passed the U.S. the House of Representatives and Senate within the past month after Peru acceded to the Democrats' demands. The House approved it in a 285 to 132 vote on Nov. 8, and the Senate approved it 77-18 this month.

Still, among House Democrats the vote was 109 to 116 against the Peru agreement, suggesting it will be difficult for the administration to win approval of three additional trade agreements with Colombia, Panama and South Korea, all of which are more controversial than the Peru accord.

Garcia today urged Congress to back the Panamanian and Colombian deals, saying they would aid leaders in the region who are committed to democracy and free markets.

``Peru is just the first act in a much, much longer running play,'' said Dan Christman, senior vice president of the U.S. Chamber of Commerce. ``Congress should support these other agreements. The logic is inescapable, even for Washington.''

Jobs and Wages

Trade between the U.S. and Peru, which totaled $8.8 billion last year, will grow by $1.5 billion once the accord is implemented as Peru ships more asparagus and apparel and American producers export more meat and grain, according to the U.S. International Trade Commission.

Critics of the agreement said they doubted the Bush administration would enforce the new provisions guaranteeing greater workers' rights. Some Democrats also said trade agreements cost U.S. workers jobs as companies move production overseas to tap cheaper labor, undercutting wages for Americans.

Peru's exports rose to a record $2.59 billion in October, spurred by surging sales of copper, zinc and natural gas.

The country is already seeing companies based in both the U.S. and in neighboring nations such as Ecuador and Bolivia set up shop in Peru as they anticipate the benefits of the free-trade agreement, said Aldo Defilippi, president of the American Chamber of Commerce in Peru.