Asian Stocks Fall, Snapping Two-Day Rally; Banks, Airlines Drop

Asian stocks fell, snapping a two- day rally, after oil prices jumped by a record and concern grew the U.S. financial-industry bailout won't prevent a recession.

Westpac Banking Corp., Australia's second-biggest bank by market value, dropped 2.1 percent after corporate bond risk rose for the first time in three days. Korean Air Lines Co. lost 2.1 percent as oil's surge yesterday raised fuel costs. China Mengniu Dairy Co. tumbled by a record 56 percent after its products were found to contain a chemical linked to at least four infant deaths.

``The bailout gave the U.S. financial system a cardiac jolt that will prevent it from collapsing, but the economy is still in intensive care,'' said Prasad Patkar, who helps manage the equivalent of $1.8 billion at Platypus Asset Management in Sydney.

The MSCI Asia Pacific excluding Japan Index slid 1.7 percent to 354.11 as of 11 a.m. in Hong Kong. Financial stocks were the biggest contributor to the decline. Stocks fell around the region, except in South Korea and Malaysia. Markets in Japan are shut for a holiday.

Asia's benchmark gauge jumped 8.3 percent in the previous two days after the U.S.'s $700 billion plan to buy toxic debt from banks and tighter regulation of short selling by the U.S., U.K., Australia and Taiwan eased concern more companies will follow Lehman Brothers Holdings Inc. into bankruptcy.

U.S. stocks and the dollar tumbled yesterday, with the Standard & Poor's 500 Index losing 3.8 percent, on concern the U.S. bailout plan won't benefit regional banks. S&P 500 futures gained 0.3 percent in after-hours trading.

Westpac slipped 2.1 percent to A$24.19. Macquarie Group Ltd., Australia's biggest securities firm, fell 6.1 percent to A$35.50.

`Second Wave'

A rally in Asian financials will be capped by an ``ongoing slowdown'' and ``a second wave of U.S. problems still ahead,'' Goldman, Sachs & Co. said in a report today. JPMorgan Chase & Co. and Merrill Lynch & Co. advised clients to sell U.S. midsized banks because they won't immediately benefit from the bailout.

United Overseas Bank Ltd., Singapore's second-biggest, slid 2.2 percent to S$17.08. HSBC Holdings Plc, the world's second biggest bank by market value, fell 1.7 percent to HK$123.90

The Markit iTraxx Australia Series 9 Index increased 4 basis points to 162.5 at 9:25 a.m. in Sydney, according to Citigroup Inc. prices. The index contains credit-default swaps tied to 25 borrowers including Macquarie and Qantas Airways Ltd.

Korean Air, the nation's biggest carrier, retreated 1.7 percent to 38,400 won. Qantas, Australia's largest, slipped 2.1 percent to A$3.25, the lowest since July 16.

Oil Surge

Oil for October delivery surged 17 percent to expire at $120.92 a barrel yesterday as traders stepped up purchases of contracts to offset earlier short sales. Crude oil for November delivery advanced 6.4 percent to close at $109.37 a barrel, and was recently at $109.07 in after-hours trading.

Newcrest Mining Ltd., Australia's largest gold producer, added 6.9 percent to A$27.25. Gold rose 5.1 percent to $909 an ounce yesterday, extending a rally after its biggest weekly gain in almost nine years, as investors shifted assets into precious metals as a haven from market turmoil and the declining dollar.

The dollar slipped to 105.30 yen from 105.51 yen late in New York yesterday, when it fell 1.8 percent.

Malaysian plantation stocks rose after Aseambankers Bhd. lifted its rating on the industry to ``overweight,'' from ``underweight,'' citing resurging biodiesel demand and a possible rebound in commodity prices. Sime Darby Bhd., the biggest, gained 3.2 percent to 6.55 ringgit. IOI Corp., the nation's second- largest listed oil-palm grower, rose 3.4 percent to 4.82 ringgit.

Mengniu, which said it's facing a ``critical moment'' after tainted Chinese-produced milk sickened almost 53,000 children, tumbled 56 percent to HK$8.59 in Hong Kong. Inner Mongolia Yili Industrial Group Co., whose milk products have been found to contain the industrial chemical melamine, fell by the 10 percent daily limit to 9.93 yuan in Shanghai.

Goldman Sachs cut its recommendations on Mengniu and Yili to ``sell,'' saying dairy sales will slow while the companies increase spending on product promotion and brand building.