Asian stocks fell, driving the region’s benchmark index toward its biggest loss in two weeks, as North Korea’s state news agency warned its confrontation with South Korea could lead to war, and on concern that China will tighten monetary policy.

Hana Financial Group Inc., South Korea’s fourth-largest financial company slumped 4.1 percent in Seoul following the resignation of South Korea’s defense minister and after having its investment rating cut. Industrial & Commercial Bank of China Ltd. lost 1.6 percent in Shanghai after the Shanghai Securities News said the government may cut the target for new lending next year. Rio Tinto Group, the world’s third-biggest mining company, climbed 1.2 percent in Sydney after metal prices advanced in London.

“Markets are factoring in the likelihood of some sort of additional action by the North Koreans,” said Tim Schroeders, who helps manage about $1 billion at Pengana Capital Ltd. in Melbourne. “What was initially dismissed as a one-off skirmish is now making people a little bit nervous.”

The MSCI Asia Pacific Index dropped 1.2 percent to 129.10 as of 7:26 p.m. in Tokyo, with two stocks dropping for each that advanced. The gauge rose 0.2 percent yesterday after reports showed that U.S. employment and consumer sentiment improved.

The measure is headed for its third straight weekly decline, the longest run of weekly losses since February. The Asia Pacific Index fell 3.5 percent from a two-year high on Nov. 8 through yesterday on speculation China will take further steps to tame inflation and on concern that a debt crisis in Europe will spread.

‘Escalated Confrontation’

South Korea’s Kospi Index slumped 1.3 percent as North Korea warned that any “escalated confrontation” will lead to war, according to state news agency KCNA. The North is “greatly enraged at the provocation” from South Korea and it will retaliate to any encroachment of its sovereignty, the agency said in a statement e-mailed to news organizations.

South Korea may appoint a new defense minister today after Kim Tae Young resigned in the wake of North Korea firing artillery onto the South’s territory for the first time in half a century this week. President Barack Obama sent a nuclear- powered aircraft carrier, USS George Washington, to the area for joint drills with South Korea between Nov. 28 and Dec. 1.

Australia’s S&P/ASX 200 Index added 0.1 percent in Sydney, the only major index in the region to advance today. Hong Kong’s Hang Seng Index dropped 0.8 percent and the Shanghai Composite Index slipped 0.9 percent. Japan’s Nikkei 225 Stock Average retreated 0.4 percent.

Financial Stability

Futures on the Standard & Poor’s 500 Index fell 0.7 percent today. U.S. markets were closed yesterday for the Thanksgiving holiday.

The benchmark Stoxx Europe 600 Index rose 0.5 percent yesterday after German central bank President Axel Weber said a rescue fund for the euro area would be sufficient to calm financial markets. Weber, who is also a European Central Bank Governing Council member, said governments can increase the size of the European Union-led bailout fund if necessary to restore confidence in the euro.

“Investors globally welcome any moves by governments to support each other,” said Angus Gluskie, who manages about $350 million at White Funds Management Pty in Sydney. “The euro issues pose a threat to the stability of financial institutions globally.”

The MSCI Asia Pacific Index increased 8.4 percent this year through yesterday, compared with 5.5 percent for the Stoxx Europe 600 Index and 7.5 percent for the S&P 500. Stocks in the Asian benchmark are valued at 14.4 times estimated earnings on average, compared with 12 times for the Stoxx 600 and 14.1 times for the S&P 500.

Hana, LG, Hyundai

Hana Financial Group Inc. slumped 4.1 percent to 37,400 won in Seoul. The stock was cut to “neutral” from “outperform” at Macquarie Group Ltd., which said the company doesn’t have excess capital after buying a controlling stake in Korea Exchange Bank.

Hyundai Motor Co., South Korea’s largest automaker, dropped 1.4 percent to 175,000 won. LG Display Co., the world’s second- largest maker of liquid-crystal displays, sank 2.3 percent to 40,850 won.

“Right now, the big issue is North Korea,” said Kim Young Chan, a fund manager at Shinhan BNP Paribas Asset Management Co., which oversees $28 billion. “There are risks remaining such as the planned military drill, and there are jitters about that, especially because stocks aren’t down enough to price that in.”

Industrial & Commercial Bank lost 1.6 percent to 4.32 yuan in Shanghai. China Construction Bank Corp. dropped 1.5 percent to 4.68 yuan. Developers China Vanke Co. and Poly Real Estate Group Co. also fell.

China Interest Rates

Chinese policy makers have been stepping up measures in recent weeks to curb inflation that reached 4.4 percent last month, the fastest pace in two years. National Development and Reform Commission, the nation’s top planning body, urged local governments to be careful about introducing price increases, according to a statement on the commission’s website yesterday.

“The market is still rife with concerns about policy tightening,” said Li Jun, a strategist at Central China Securities Co. in Shanghai. “The central bank had made it clear that it will use price tools to manage inflation expectations. That means another interest rate increase will come soon.”

Rio advanced 1.2 percent to A$84.04 in Sydney after a measure of metals traded in London rose 1.4 percent yesterday following Weber’s comments. Copper advanced 1.1 percent, zinc 3.4 percent, and nickel 1.4 percent. Woodside Petroleum Ltd., Australia’s No. 2 oil and gas producer, climbed 0.7 percent to A$40.95 as crude oil prices increased in New York yesterday.

Among other stocks that fell today, Aristocrat Leisure Ltd., the world’s second-largest maker of slot machines, tumbled 19 percent to A$2.70 in Sydney after saying earnings may drop as much as 57 percent on lower sales and gains by the Australian dollar.


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