Asian Stocks Drop on Growth, Credit Loss Concerns; Toyota Falls

March 3 (Bloomberg) -- Asian stocks dropped the most in almost two weeks, almost erasing last month's gains, on deepening concerns credit losses at financial companies will increase and the U.S. economy is headed for a recession.

Commonwealth Bank of Australia retreated to the lowest in more than two years in Sydney, while Mitsubishi UFJ Financial Group Inc. fell in Tokyo after UBS AG said industry losses in credit markets may reach $600 billion. Toyota Motor Corp., the world's second-largest automaker, dropped after a gauge of U.S. business activity fell to the lowest level since 2001 and the yen strengthened against the dollar.

``The U.S. economy is contracting, there's no doubt about it,'' said Tom Murphy, who helps manage the equivalent of about $1 billion at Deutsche Bank AG in Sydney. ``Weakness in stocks is and will continue to extend beyond the financials over the next few months.''

The MSCI Asia Pacific Index lost 2.7 percent to 143.64 as of 1 p.m. in Tokyo, set for its biggest decline since Feb. 20. Financial stocks were the biggest drag. The benchmark almost erased February's 2.8 percent gain, which came amid speculation a bailout of U.S. bond insurers will limit credit losses.

Japan's Nikkei 225 Stock Average slipped 3.8 percent to 13,080.82, the largest slump since Feb. 6. The gauge has tumbled 15 percent this year. Australia's S&P/ASX 200 Index fell 2.9 percent today, led by BHP Billiton Ltd., after metal prices retreated.

Bank Stocks Drop

U.S. stocks plunged on Feb. 29, capping the market's fourth monthly drop, after the National Association of Purchasing Management-Chicago said its business barometer contracted as production and employment weakened. The Standard & Poor's 500 Index declined 2.7 percent, the most since Feb. 5.

Commonwealth Bank, Australia's biggest mortgage provider, dropped 5.1 percent to A$39.99, poised for its lowest close since Nov. 7, 2005. Mitsubishi UFJ, Japan's largest publicly traded bank, declined 3.8 percent to 910 yen. HSBC Holdings Plc, Europe's No. 1 bank by market value, slipped 1.7 percent to HK$118.70 in Hong Kong.

A measure of financial shares on MSCI's Asian index has dropped 13 percent so far this year, the largest decline among the regional benchmark's 10 industry groups, amid signs of increased writedowns to cover losses on investments tied to the U.S. mortgage industry. The broader index has fallen 9.2 percent this year.

``We have to recognize the risk that the economy will suffer more damage than what consensus suggests,'' Geraud Charpin, head of European credit strategy at UBS in London, wrote in a Feb. 29 report. Financial institutions have so far disclosed more than $181 billion of writedowns and credit losses.

Yen Strength

Takefuji Corp., Japan's No. 3 consumer lender by market value, slumped 5.1 percent to 2,530 yen after saying it may cut its full-year earnings forecast because of losses on derivatives transactions arranged by Merrill Lynch & Co.

Toyota declined 4 percent to 5,520 yen, leading declines among Asian exporters. Nintendo Co., the maker of the Wii game console, slumped 4.5 percent to 51,000 won. Samsung Electronics Co., Asia's biggest maker of chips, mobile phones and flat panels, retreated 1.1 percent to 556,000 won.

U.S. reports this week may show the unemployment rate probably rose in February as hiring slowed in the largest market for Asian goods and manufacturing may have contracted, according to economist estimates.

Japanese exporters also fell on concern the dollar's decline to a three-year low against the yen will erode the value of U.S. revenue. The dollar fell to 102.93 yen, the lowest since Jan. 28, 2005. It was recently at 103.08 yen.

`Anxious'

A one yen increase in the value of the Japanese currency against the dollar cuts Toyota's annual operating profit by 35 billion yen ($340 million).

``Investors are anxious about the U.S. economic contraction and that's feeding into the weaker dollar and stronger yen, which is pulling the market down here,'' said Junichi Misawa, who oversees $655 million at STB Asset Management Co. in Tokyo. ``There's a lot of economic data coming out this week and if it is as bad as economists are predicting we're likely to see markets correct further.''

BHP, the world's largest mining company, fell 2.7 percent to A$38.52. Rio Tinto Group, the world's No. 3, dropped 3.7 percent to A$132, set for its biggest decline since Jan. 29. A measure of six metals on the London Metal Exchange, including copper and nickel, dropped 0.9 percent on Feb. 29, halting a three-day, 6.4 percent advance.

Also in Australia, Zinifex Ltd. surged 8.5 percent to A$12.07, the biggest advance on MSCI's Asian index. The company agreed to merge with Oxiana Ltd., the fourth-largest Australian metals producer by market value, to form a A$12 billion ($11.2 billion) company.

Oxiana slipped 2.8 percent to A$3.86.

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