Asia Stocks, Commodities Fall on China Tightening; Pound Drops

By Rocky Swift and Shani Raja
March 15 (Bloomberg) -- Asian stocks dropped while oil and copper declined on prospects China will take more steps to cool its economy. The pound weakened after Moody’s Investor Service said the U.K. is close to losing its top credit rating.
The MSCI Asia Pacific Index slid 0.4 percent to 122.70 as of 5 p.m. in Tokyo, as the Shanghai Stock Exchange Composite sank to a five-week low. The pound fell against 15 of 16 major counterparts after Moody’s Managing Director Pierre Cailleteau said the U.K. and U.S. have moved closer to losing their AAA ratings. Futures on the Standard & Poor’s 500 fell 0.4 percent.
The Stoxx Europe 600 was little changed at 8 a.m in London.
U.S. lawmakers and economists say China’s reluctance to let the yuan appreciate is threatening global competitiveness at a time when Premier Wen Jiabao also is taking steps to rein in growth in the world’s third-largest economy. Wen rebuffed calls yesterday for a stronger yuan, while Morgan Stanley said it expects increases in bank-reserve ratio requirements and higher interest rates as early as April.
"Given that China has been a powerhouse of economic activity since the global financial crisis, the fear is that withdrawal of stimulus prematurely will see a rapid fall in Chinese economic activity," said Tim Schroeders, who helps manage $1.1 billion at Pengana Capital Ltd. in Melbourne.
"The concern is that tightening measures will choke demand."
Two shares fell for every one that gained on the MSCI Asia Index, which gained 2.4 percent last week, a third weekly advance.

China Stocks

The Shanghai Composite Index lost 1.5 percent, the biggest index mover in Asia today. Baoshan Iron & Steel Co., China’s biggest steelmaker, dropped 2.9 percent, and Jiangxi Copper Co., the nation’s largest producer of the metal, fell 1.6 percent.
"There are still lingering market expectations about further tightening and there’s a possibility that the reserve ratio will be raised this week," said Zhang Qi, an analyst at Haitong Securities Co. in Shanghai. "There isn’t much upside for the market, though the economy is recovering."
"We expect multiple reserve requirement ratio hikes as warranted by the need to sterilize the liquidity impact, with the next one imminent," Morgan Stanley’s Hong Kong-based economist Qing Wang wrote in a March 14 report. China may raise interest rates as early as next month, he said. The government has set a 7.5 trillion loan target for 2010, after a record 9.59 trillion yuan of new loans last year.

Copper Falls

Copper for three-month delivery dropped 0.8 percent to $7,387 a metric ton and aluminum declined 0.6 percent to $2,248 a ton. Crude oil for April delivery fell as much as 0.6 percent to $80.75 a barrel in after-hours electronic trading on the New York Mercantile Exchange.
The won retreated from near a seven-week high after Wen told a press conference yesterday in Beijing that he doesn’t think the yuan is undervalued and China opposes "countries pointing fingers at each other and even forcing a country to appreciate its currency." The Kospi Index dropped 0.9 percent.
Wen echoed central bank Governor Zhou Xiaochuan’s comments that China needs to be cautious in exiting crisis policies, which include having kept the yuan at about 6.83 per dollar since July 2008 to help exporters. Nobel Prize-winning economist Paul Krugman says that global economic growth would be about 1.5 percentage points higher if China stopped restraining the value of the yuan.
"Expectations that there’d be an immediate move in the yuan were too high," said Joe Craven, the Asia-Pacific head of currencies and fixed-income at Unicredit Markets & Investment Banking in Hong Kong.

Yuan Forwards

Non-deliverable 12-month yuan forwards weakened 0.3 percent to 6.6450 per dollar in Hong Kong, the biggest drop in more than a month. The contracts reflect bets China’s currency will strengthen 2.8 percent from its spot rate of 6.8255.
Sterling lost 0.2 percent versus the yen and 0.3 against the Canadian dollar. The euro slipped 0.2 percent to $1.3736.
The U.S. and U.K. governments must balance bringing down their debt burdens without damaging growth by removing fiscal stimulus too quickly, Cailleteau of Moody’s said in London.
"Reports about rating companies continue to have an impact on the market," said Toshiya Yamauchi, manager of currency margin trading at Ueda Harlow Ltd. in Tokyo. "When the market runs out of positives, growth-related currencies such as the Aussie tend to lose momentum."
The cost of protecting Asia-Pacific corporate and sovereign bonds from default fell, according to traders of credit-default swaps.
The Markit iTraxx Asia index of 50 investment-grade borrowers outside Japan fell 1 basis point to 90 basis points, Citigroup Inc. prices show.
The Markit iTraxx Australia index declined 1 basis point to
79.5 basis points, according to Citigroup. The Markit iTraxx Japan index dropped 1 basis point to 124 basis points, according to Morgan Stanley prices.