Asia Stocks Drop on China Growth Concern

Asia Stocks Drop on China Growth Concern; Treasuries, Yen Rally

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By Clyde Russell and Shani Raja

June 29 (Bloomberg) -- Asian stocks dropped to a two-week low on concerns that growth in China, the engine of the world’s economic recovery, will slow. Treasury two-year note yields fell to a record low and the yen strengthened.

The MSCI Asia Pacific Index lost 0.9 percent to 114.65 at 1:52 p.m. in Tokyo, extending the slump from its April 15 high to 11 percent. Standard & Poor’s 500 Index futures dropped 0.3 percent. The yen strengthened to near a five-week high of 88.83 per dollar in Tokyo from 89.37 yesterday in New York. The yield on the benchmark two-year U.S. government note dropped to 0.6014 percent, the lowest on record. Copper sank 1.6 percent in London.

Investor sentiment worsened after the Conference Board said its China leading economic index rose 0.3 percent in April, less than the 1.7 percent gain reported June 15. China’s exports face “strong headwinds” in the second half of the year from policy tightening measures and the European debt crisis, Citigroup Inc. said in a report today.

“The market is pausing to digest the implications of the macro overhang of the last couple of weeks,” said Jason Teh, who helps manage $3 billion at Investors Mutual in Sydney. “Markets are maybe realizing the growth trajectory may be slower because there is still too much leverage in the system. Today there is more of a focus on stocks specific news.”

China’s Shanghai Composite Index slumped 1.8 percent and Hong Kong’s Hang Seng Index lost 1.1 percent. South Korea’s Kospi dropped 0.5 percent, while Australia’s S&P/ASX 200 Index lost 0.2 percent. Japan’s Nikkei 225 Stock Average sank 0.7 percent.

China Stocks

Industrial Bank Co. and China Pacific Insurance (Group) Co. declined more than 1.6 percent, while developer Gemdale Corp. retreated 5.7 percent after a senior executive resigned. The country’s central bank said June 19 that it would allow more flexibility in trading of the yuan, allowing it to strengthen for the first time in almost two years.

“There’s no catalyst for stocks to go up,” said Wei Wei, an analyst at West China Securities Co. in Shanghai. “I don’t see the possibility of a reversal until the government eases its current tightening measures.”

The New York-based Conference Board cited a calculation error for the revision in its Chinese index. The research group’s outlook for the nation’s economy hasn’t been affected by the correction, said William Adams, the group’s economist.

“Growth was not likely to accelerate in China, and in fact, a moderation is possible,” Adams said in a telephone interview. “This correction also supports the same view.”

Yen Gains

Demand for less risky assets lifted the yen and pushed up Treasuries, sending 10-year yields to the lowest levels in 14 months. Japan’s currency rose to as much as 108.94 per euro, the most since June 9. The euro was as low as $1.2258 from $1.2277.

The benchmark 10-year Treasury yield fell two basis points to 2.99 percent, according to data compiled by Bloomberg. That level was last seen in April 2009. Two-year yields fell below the previous record low of 0.6044 percent set Dec. 17, 2008, after the Federal Reserve cut its target for overnight lending to a range of zero to 0.25 percent.

“As economic data worsens I’m not sure if policy makers will be able to strike a balance between economic growth and austerity,” said Kazuyuki Kato, treasury department manager in Tokyo at Mizuho Trust & Banking Co., a unit of Japan’s second- largest publicly traded lender by assets. “The bias is for the yen to advance.”

Japan’s industrial production fell in May while its jobless rate rose, government data showed today. The Conference Board will report later today that its index of U.S. consumer confidence fell to 62.5 this month from 63.3 in May, according to 71 economists in a Bloomberg survey.

New Zealand Dollar

New Zealand’s dollar slipped 0.6 percent to 70.42 U.S. cents, and dropped 1 percent to 62.70 yen after a government report showed home-building approvals declined in May.

Permits declined 9.6 percent from April when they gained a revised 8.4 percent, Statistics New Zealand said, citing seasonally adjusted figures.

Copper declined in London as deficit-reduction and financial-overhaul plans discussed at the Group of 20 meeting fueled concerns the global economy recovery may slow.

Three-month delivery copper fell as much as 1.6 percent to $6,758 a metric ton on the London Metal Exchange and traded at $6,772. Nickel tumbled as much as 1.9 percent to $20,250 a ton and lead fell as much as 1.7 percent to $1,829.25 a ton.

Crude oil fell below $78 a barrel in New York on concern slower economic growth may curb demand and as a tropical storm avoided Gulf of Mexico production areas.