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Asian Stocks Fall, Won Slumps on Artillery Drills; Dollar Gains
Dec. 20 (Bloomberg) -- Asian stocks fell and the won slumped to a one-month low on speculation North Korea will retaliate to artillery drills by its neighbor. Treasuries and the dollar rose as demand for U.S. debt as a haven increased.
The MSCI Asia Pacific Index fell 0.7 percent to 132.73 as of 1:16 p.m. in Hong Kong. South Korea's Kospi Index lost 0.7 percent and the won dropped 0.9 percent to 1,163.30 per dollar. Ten-year Treasuries rose for a third day, while Standard & Poor's 500 Index futures decreased 0.3 percent. The dollar appreciated to $1.3149 against the euro in Tokyo trading from $1.3188 in New York last week.
Investors became more skittish as South Korea said it will proceed with a live-firing drill and the United Nations Security Council failed to agree on steps to ease tension on the peninsula. The dollar also strengthened against the euro before reports this week that economists say will show U.S. economic growth accelerated and personal spending climbed.
"It's in nobody's interest for the conflict in the Korean peninsula to erupt into a full-blown war," said Steve Sevidal, who helps manage $1.24 billion as chief investment officer at Manila-based United Coconut Planters Bank. "A prolonged debt problem in Europe creates uncertainty and volatility in the financial system that could make investors risk averse."
About seven stocks fell in the MSCI Asia Pacific Index for every two that advanced. Japan's Nikkei 225 Stock Average lost 0.8 percent and Hong Kong's Hang Seng Index dropped 1 percent.
Chinese Stocks Slump
China's Shanghai Composite Index sank 2.5 percent as Kangmei Pharmaceutical Co. led a retreat among health-care companies after the Economic Observer said the government may cut medicine prices by 40 percent.
Seoul-based LG Electronics Inc., the world's third-largest mobile-phone maker, sank 1.3 percent. LG Chem Ltd., South Korea's biggest maker of chemicals, slumped 2.7 percent.
South Korea will begin an artillery drill on Yeonpyeong Island, which was shelled by the North last month, this afternoon after fog clears, said a defense ministry official who declined to be named, citing government policy. The drill will take about two hours to complete, he said. A levy is planned for foreign-currency borrowing by banks "to regulate systemic risk from excessive capital inflows and outflows," Vice Finance Minister Yim Jong Yong said Dec. 18.
Weapons Inspectors
The Kospi and the won pared declines after Agence France- Presse reported a CNN broadcast as saying that North Korea will allow United Nations nuclear inspectors to return to the country.
The country's defense-related shares climbed. Victek Co., which makes electronic warfare equipment, jumped 6.8 percent. Speco Co., a military installation parts developer, gained 11 percent, while Huneed Technologies, a military communication equipment manufacturer, climbed 3.4 percent.
The yield on South Korean 3 percent bonds maturing in December 2013 gained seven basis points to 3.42 percent, the highest level for a benchmark three-year note since Nov. 23.
"Geopolitical risks boost uncertainties after South Korea said it will proceed with a live-firing drill," said Song Seong Yeob, a fund manager at KB Asset Management Co. in Seoul, which oversees the equivalent of $17 billion in assets.
Perpetual Ltd. shares plunged 14 percent in Sydney after KKR & Co. ended talks for a possible takeover of the Australian fund manager. KKR won't carry out due diligence and Sydney-based Perpetual doesn't expect further discussions with the New York- based firm, Perpetual said.
Europe's Debt Crisis
The euro earlier depreciated to $1.3125, the weakest level since Dec. 2. Europe's currency declined to 110.32 yen, the lowest level since Dec. 7, from 110.77 yen on Dec. 17.
The European Central Bank said it has "serious concerns" that legislation introduced by the Irish government to fix its banking system threatens the ECB's ability to run its liquidity operations, according to a position paper dated Dec. 17. France is due to sell 3.5 billion euro ($4.6 billion) of bills maturing in March today.
Moody's Investors Service on Dec. 17 cut Ireland's credit rating by five levels to Baa1 and on Dec. 16 placed Greece's Ba1 local and foreign currency government bond ratings on review for possible downgrade.
"The U.S. dollar will track higher this week with the market forecasts for the economic growth revisions and personal spending reports are a bit underdone," said Joseph Capurso, a currency strategist at Commonwealth Bank of Australia in Sydney. "Overlay that with ongoing concerns, downgrades and the like in Europe and it's difficult to see the euro climb higher."
Gold, Treasuries
The U.S. economy grew at a 2.8 percent annual pace in the third quarter, quicker than the 2.5 percent estimate published last month, the Commerce Department will say Dec. 22, a Bloomberg survey of 61 economists showed. Spending by consumers rose 0.5 percent in November after a 0.4 percent increase in October, a separate survey showed before the Dec. 23 report.
The U.S. dollar also rose against 10 of its major counterparts as Korean tensions boosted demand for safer assets. Gold for immediate delivery climbed 0.4 percent to $1,384.70 an ounce. The yield on 10-year Treasuries declined two basis points to 3.3 percent, according data compiled by Bloomberg.
Rubber futures in Tokyo jumped 2.9 percent to a record 410.3 yen per kilogram as rains in Thailand curbed supplies from the world's biggest producer. The commodity has climbed 48 percent this year.
To contact the reporter for this story: Darren Boey at dboey@bloomberg.net Ian C. Sayson in Manila at isayson@bloomberg.net .
To contact the editor responsible for this story: Darren Boey at dboey@bloomberg.net .
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