By Chua Kong Ho Dec. 4 (Bloomberg) -- Asian stocks fell, erasing earlier gains, and U.S. futures dropped on speculation General Motors Corp. and Chrysler LLC will enter bankruptcy, deepening a global economic recession and reducing demand for auto parts and metals. Bridgestone Corp., the world's largest tiremaker by sales, tumbled 10 percent. Rio Tinto Group, the world's third-biggest mining company, slumped 11 percent on concern it may have difficulty refinancing debt and as copper, aluminum and zinc prices tumbled in Shanghai. Surfwear maker Billabong International Ltd. plunged 20 percent, the most in five years, after saying first-half earnings will probably decline. ``This reflects the harsh and difficult conditions that the global automotive industry will be facing in this tough economy in the coming months,'' said David Leong, who heads the Singapore trading desk at First State Investments Ltd. The MSCI Asia Pacific Index fell 1.1 percent to 79.01 at 1:47 p.m. in Tokyo, reversing a gain of 0.8 percent. About five stocks dropped for every three that gained on the measure. The gauge has dropped 50 percent this year, as funding dried up after financial institutions incurred almost $1 trillion in writedowns and credit losses, pushing the global economy into a recession. Japan's Nikkei 225 Stock Average declined 1 percent to 7,923.22. The nation's businesses cut investment at the fastest pace in six years last quarter as the global financial crisis darkened the outlook for exports. Futures on the Standard & Poor's 500 Index slid 1.2 percent. GM and Chrysler executives are considering accepting a pre- arranged bankruptcy to secure a multibillion-dollar government bailout, a person familiar with internal discussions told Bloomberg News. Auto executives have warned that bankruptcy would lead to liquidation as customers abandoned the companies. Bridgestone, Honda Bridgestone lost 11 percent to 1,336 yen. The tiremaker said this week it may cease production of tires for passenger cars and light trucks at a Tennessee factory. U.S. auto sales plunged 37 percent in November to the lowest annual rate in 26 years as the recession and Detroit automakers' pleas for government aid kept buyers out of showrooms. Honda Motor Co. slumped 7.3 percent. Honda president Takeo Fukui said his company is studying ways to minimize the effects of any U.S. carmaker failures. Measures may include increasing its parts inventory, he said. Japanese and Australian funding costs gained and South Korean banks paid a record amount to borrow U.S. dollars as concerns about meeting end-of-year cash needs overwhelmed central bank rate cuts and easier access to money. Rio Debt Rio slid 11 percent to A$32.70. BHP Billiton Ltd. scrapped its bid for Rio Tinto on Nov. 25, citing turmoil in global markets, slumping demand for commodities and Rio's $42.1 billion of debt. Rio's debt levels prompted Moody's Investors Service to review its rating on $5 billion of Rio's debt on Nov. 26. ``All the focus seems to be about the bullet payment of $9 billion due next year,'' said Tim Schroeder, who helps manage A$1.6 billion at Pengana in Melbourne, including both BHP and Rio. The cost of protecting investors in Asian bonds from default rose after the Federal Reserve said the U.S. economy weakened across all regions as it became tougher to get loans and demand for credit shrank. China's CSI 300 Index gained 4.1 percent after the country's cabinet said it may use interest rates and exchange rate measures to ensure liquidity in the banking system and loan growth. Industrial & Commercial Bank of China Ltd. led gains. New Zealand's NZX 50 Index added 0.9 percent. Reserve Bank Governor Alan Bollard cut the benchmark interest rate by a record 1.5 percentage points to 5 percent and said more reductions may be needed. To contact the reporter for this story: Chua Kong Ho in Shanghai at kchua6@bloomberg.net

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