By Kana Nishizawa and Masaki Kondo May 21 (Bloomberg) -- Global stocks plunged, extending a rout that wiped $5.3 trillion off market value this month, on concern Europe’s debt crisis will spread and the U.S. economic recovery will falter. Oil slumped and bond risk surged. The MSCI Asia Pacific Index declined 1.6 percent to 111.79 at 4 p.m. in Tokyo, reaching a nine-month low. The Stoxx Euro 600 decreased 0.5 percent to 2337.13, the third drop in four days, at 8 a.m. in London. Oil dropped 2.7 percent to $68.01 a barrel. The cost of insuring Asian bonds against default soared to a six-month high. The euro rallied from a four-year low and U.S. stock futures rose on speculation the continent’s finance ministers meeting in Brussels will act to support markets. Global equities are set for the biggest monthly decline in market value since October 2008 as confidence was rocked by Germany’s crackdown on speculation and plans to tighten U.S. finance industry regulation. Investors withdrew some $12 billion from U.S. and European equity funds in the week to May 19, the most in almost two years, EPFR Global said in an e-mail. “A combination of events has made investors reassess the outlook for the global economy,” said Stephen Halmarick, Sydney-based head of investment-markets research at Colonial First State Global Asset Management, which holds about $138 billion. “There’s clearly been a major reduction in risk appetite globally and it’s difficult to see the situation stabilizing in the near term.” Futures on the Standard & Poor’s 500 Index gained 0.7 percent after the index plunged 3.9 percent yesterday, its biggest drop since April 2009. Ten-year U.S. Treasury yields, which sank to the lowest level of the year yesterday, rose 2 basis points to 3.24 percent. Equity Corrections Japan’s Nikkei 225 Stock Average sank 2.5 percent. A U.S. government report yesterday showed jobless claims in the world’s largest economy unexpectedly increased to and the Conference Board’s index of leading economic indicators posted a surprise drop of 0.1 percent. Honda Motor Co., which gets about 81 percent of its sales from overseas, declined 2.5 percent to 2,823 yen. Canon Inc., a camera maker that counts Europe as its biggest market by revenue, dropped 2.6 percent to 3,725 yen. Stock markets in South Korea and Hong Kong are closed today for holidays. Benchmark indexes in Taiwan, Singapore, Vietnam and Indonesia fell more than 10 percent from their recent peaks today even amid signs the region’s economic growth accelerated this year. Losing Confidence Taiwan’s Taiex fell 2.5 percent, bringing its decline since April 15 to 11 percent. The island’s government yesterday reported a 13.27 percent economic expansion in the first quarter from a year earlier, the fastest growth in more than 30 years. Japan posted a 4.9 percent growth rate that was the highest in three quarters. Singapore’s economy grew an annualized 38.6 percent in the first quarter. “Investors are losing confidence,” said Robyn Hsu, who helps manage $3 billion at Capital Investment Trust Corp. in Taipei. “Taiwan’s growth will slow through the year despite a very stunning first-quarter figure yesterday. Falling commodity and gold prices suggest investors are retreating even from relatively safe markets.” Oil extended its decline after crude inventories rose for the 15th time in 16 weeks in the seven days ended May 14. Copper for three-month delivery rose 0.6 percent, reversing an earlier loss today of 1.3 percent, to $6,648.25 per metric ton, although it was headed for its sixth weekly decline. The metal has slumped 16 percent in the past month. U.S. stocks plunged this week as President Barack Obama said a financial regulation overhaul is moving through Congress despite efforts to block its progress by industry lobbyists. Destructive Markets German Chancellor Angela Merkel’s unilateral effort to control what she called “destructive” markets rattled investors. The German ban on some bearish bets against financial companies and government bonds wasn’t replicated in other European states. Treasury Secretary Timothy F. Geithner will visit Germany and the U.K. next week to discuss the crisis. European Union President Herman Van Rompuy will host a meeting of finance ministers in Brussels today to discuss reforms to economic governance. German Finance Minister Wolfgang Schaeuble will present a nine-point plan aimed at avoiding a repeat of the crisis touched off by Greece’s budget deficit. The euro climbed 0.5 percent to $1.2557 amid speculation the Swiss National Bank sought to support the franc drove traders to theorize that the European Central Bank may do the same for the shared currency. The Australian dollar rebounded from a 10-month low versus the greenback on speculation the nation’s central bank is also prepared to intervene. Intervention Suspected Australia’s dollar reversed earlier declines to gain 1.4 percent to 82.89 U.S. cents. A Reserve Bank of Australia spokesperson declined to comment on intervention speculation. “The spike of the Aussie, which took place amidst all the gloom, suggests that there was some unnatural act,” said Takashi Kudo, Tokyo-based general manager of market information at NTT SmartTrade Inc. Malaysia’s ringgit slid 1.4 percent to 3.3185 per dollar, on speculation China will offer no concessions on yuan appreciation at the Strategic & Economic Dialogue with the U.S. in Beijing May 24-25. Yuan Expectations Yuan twelve-month non-deliverable forwards dropped 0.3 percent to 6.7706 per dollar, reflecting bets the currency will strengthen 0.8 percent, the least in more than eight months. The central bank may delay raising borrowing costs and revaluing the exchange rate, BNP Paribas said in a research note. The Markit iTraxx Asia index of 50 investment-grade borrowers outside Japan jumped 18 basis points to 157.5 basis points. Credit-default swap indexes are benchmarks for protecting debt against default and traders use them to speculate on credit quality. “Markets are only slowly grasping that we cannot continue to finance deficits with more debt,” said Mark Bayley, a Sydney-based credit strategist with advisory firm Aquasia Ltd. “At some stage governments, and consumers, need to stop spending, re-jig finances and plot a more austere and cautious future path.” To contact the reporters on this story: Kana Nishizawa in Tokyo at knishizawa5@bloomberg.net; Masaki Kondo in Tokyo at mkondo3@bloomberg.net;

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