Asian Stocks Fall Most in Seven Weeks on Interest Rate Concerns

June 8 (Bloomberg) -- Asian stocks dropped the most in seven weeks on concern rising global interest rates will curb consumer spending and corporate profits.

All 10 industry groups of the Morgan Stanley Capital International Asia-Pacific Index retreated. Toyota Motor Corp., which gets almost two-thirds of its revenue from overseas sales, had its biggest fall in two months after U.S. bond yields jumped.

``There's now strong odds global interest rates are on the rise, which is the last thing equity markets need at the moment,'' said Gerard Minack, a strategist at Morgan Stanley in Sydney. ``If rates go up that's going to choke up the support for equities.''

Rio Tinto Group, the world's third-largest mining company, led materials stocks lower along with metals prices. Japanese non- bank lenders including Credit Saison Co. plunged after the nation's Supreme Court ruled they must apply excess interest payments by customers to the principal on loans.

The MSCI Asia index lost 1.3 percent to 150.87 as of 6:07 p.m. in Tokyo, the most since April 19, after yesterday sliding 0.2 percent from a record high. The measure has slipped 0.3 percent this week, snapping a two-week, 2.7 percent advance.

In Japan, the Nikkei 225 Stock Average dropped 1.5 percent to 17,779.09. Shares also declined after a report today showed April machinery orders rebounded less than some economist estimates.

Benchmarks also plunged more than 1 percent in Australia, South Korea, Singapore, Indonesia, New Zealand and Hong Kong, where HSBC Holdings Plc slid on concern higher interest rates will dent demand for loans. Ping An Insurance (Group) Co. led China's CSI 300 Index 0.9 percent higher.

Toyota, Hon Hai

U.S. stocks fell yesterday, pushing the Standard & Poor's 500 Index and the Dow Jones Industrial Average down by the most in three months. The U.S. is Asia's biggest export market.

Toyota, Japan's largest automaker by market value, slid 2 percent to 7,470 yen, the biggest drop since April 13. Westfield Group, which operates 59 malls in the U.S., lost 1.6 percent to A$21.12 in Australia. Hon Hai Precision Industry Co., Taiwan's largest electronics company by sales, fell 1.6 percent to NT$254. Hon Hai's U.S. customers include Apple Inc. and Motorola Inc.

The U.S. Treasury 10-year note fell the most in more than three years, pushing yields to 5.13 percent yesterday. Options on the Federal Reserve funds rate show that as of June 6, the odds of an interest-rate increase to 5.50 percent from 5.25 percent are at almost 41 percent. A month earlier, the odds were zero.

European 10-year note yields climbed to 4.5 percent, a 4 1/2- year high after the central bank lifted the refinancing rate to 4 percent on June 6. Interest rates in the U.S., Europe, Australia, the U.K. and South Korea are at six-year highs and at a record in New Zealand.

Stocks and Bonds Blow

``There's inflation pressure in the U.S. and a rate increase in Europe, which has dimmed expectations for interest-rate cuts,'' said Chu Moon Sung, who oversees about $5.8 billion in global equities at Shinhan BNP Paribas Investment Trust Management Co. in Seoul. ``Inflation deals a hit to both stocks and bonds.''

HSBC, the world's third-largest lender by market value, fell 0.6 percent to HK$143.20. Sun Hung Kai Properties Ltd., Hong Kong's second-largest developer by market value, dropped 1.6 percent to HK$89.05.

Movements in Hong Kong's interest rates typically track the U.S. because the local currency is linked to the U.S. dollar. Higher borrowing costs may dent demand for bank loans to buy property.

``Rising interest rates, coupled with inflation concerns, are negative for long-term investments,'' said Charles Chen, who helps manage the equivalent of $3.7 billion at JF Asset Management Co. in Taipei. ``Investors are turning cautious.''

Rio, Credit Saison

Rio Tinto fell 1.6 percent to A$91.97. Sumitomo Metal Mining Co., Japan's biggest nickel producer and No. 2 copper smelter, slid 3.9 percent to 2,840 yen. PT International Nickel Indonesia, the country's largest nickel producer, tumbled 6.3 percent to 48,350 rupiah.

A measure of six metals traded on the London Metal Exchange dropped 1.2 percent yesterday. Nickel slumped 5.7 percent and zinc fell 0.8 percent.

Credit Saison, a Japanese consumer credit company, dropped 8.8 percent to 3,130 yen, the biggest percentage loser on the MSCI World Index. Rival Aiful Corp. slid 4.1 percent to 3,510 yen.

Yesterday's decision is the second blow to consumer lenders by Japan's Supreme Court, which in December 2005 ruled customers could sue to recover interest charges in excess of legal limits. Aiful and its three closest rivals lost a combined $14 billion in the latest fiscal year as demands for refunds of interest payments forced them to add provisions.

Machinery Orders

Also in Japan, Fanuc Ltd., a maker of industrial robots, lost 1.6 percent to 11,420 yen. Sumitomo Heavy Industries Ltd., a maker of heavy machinery, tumbled 3.9 percent to 1,399 yen.

Japan's machinery orders rose a seasonally adjusted 2.2 percent to 1.01 trillion yen ($8.3 billion) from March, the Cabinet Office said in Tokyo today. The median estimate of 42 economists surveyed by Bloomberg News was for a 4.5 percent gain.

China's stocks climbed for a fourth day. Ping An Insurance, China's No. 2 insurer, rose 2.6 percent to 59.18 yuan. China Yangtze Power Co., owner of the world's biggest hydropower project, gained 2.3 percent to 13.34 yuan.

China's economic growth can continue to sustain gains in the domestic stock market, Shanghai Securities News reported, citing State Council researcher Chen Daofu. Rising corporate profits and excess liquidity, the main drivers behind China's stock gains over the past two years, are still in place, according to the Xinhua- affiliated newspaper.

``Investors may be itching to step up buying again given many of us remain bullish on the market in the long term,'' said Sun Cheng, who manages the equivalent of $400 million with Pacific Asset Management Co. in Shanghai.