Asian stocks fell, led by Japanese banks, and the yen weakened to a two-week low against the dollar on concern efforts to cut Japan’s government debt will slow after the ruling party lost control of the upper house. The MSCI Asia Pacific Index fell 0.2 percent to 115.94 as of 4 p.m. in Tokyo, halting a two-day, 2.6 percent rally. The Stoxx Europe 600 was little changed. The yen depreciated to 88.83 per dollar from 88.62 last week, after earlier hitting 89.16, the least since on June 29. Futures on the Standard & Poor’s 500 Index fell 0.4 percent. Copper retreated following a 5.5 percent gain last week. The Democratic Party of Japan won 44 seats in the upper house, 12 short of a majority, making it unlikely Prime Minister Naoto Kan will be able to reduce the world’s largest public debt. Stocks rose earlier ahead of the start of the U.S. second- quarter earnings season, with S&P 500 companies projected to post profit gains of 34 percent, according to analysts’ estimates compiled by Bloomberg. “The yen could actually weaken because there’s going to continued spending by the government and there’s going to be a delay in the consumption tax hike,” Curtis Freeze, chairman of Honolulu-based Prospect Asset Management Inc. with about $1 billion in assets, said in a Bloomberg Television interview. “Earnings are the key but it’s going to be very company specific.” Nikkei Falls The Nikkei 225 Stock Average fell 0.4 percent, led by Mitsubishi UFJ Financial Group Inc., on concern the elections will increase political uncertainty. Stock benchmarks rose elsewhere in Asia, except for indexes in Taiwan and Singapore, which were little changed. China’s Shanghai Composite Index rose 0.7 percent as speculation the government will relax curbs on mortgage lending amid a slowdown in property prices drove gains in developers. Mitsubishi UFJ, Japan’s biggest bank by market value, and Mizuho Financial Group Inc. both dropped more than 2.1 percent. Kan, who took office a month ago, stoked voter resentment by calling for a debate on whether to raise the 5 percent sales tax, drawing attention to a national debt that amounts to $80,000 per person. Losing his coalition government’s majority will mean he must reach out to smaller groups to ensure smooth passage of legislation to bolster growth and welfare spending. “The election result clouded the political outlook, and that’s weighing on the market,” said Yoshinori Nagano, a senior strategist in Tokyo at Daiwa Asset Management Co., which oversees about $104 billion. ‘Potentially Negative’ The yen fell against the dollar after Standard & Poor’s said Kan’s defeat “potentially negative” for Japan’s debt rating because of legislative gridlock. The yen’s weakness provided a boost to Japan’s exporters, helping to limit declines. Honda Motor Co., which gets more than 40 percent of its revenue in North America, jumped 3.1 percent and Sony Corp., an electronics maker that counts the U.S. as its largest single market outside Japan, rallied 3.6 percent. Commodity-related stocks climbed, with Rio Tinto Group rising 1 percent and Nippon Steel Corp., Japan’s largest steelmaker, surging 2.3 percent. Material producers and banks have fallen the most this year among the MSCI Asia’s 10 industry groups on concern Europe’s debt crisis would lead to slowing economic growth and reduce demand for commodities. Alcoa Inc., the first company in the Dow Jones Industrial Average to report second-quarter earnings, will post a profit for the first time in three quarters, according to analyst estimates compiled by Bloomberg. Three-month copper futures fell 1.2 percent to $6,680 a metric ton on the London Metal Exchange after a customs office report showed that imports by China, the largest user, dropped for a third month in June. A report also showed China, the world’s second-biggest energy consumer, increased crude imports to a record in June. Oil traded at $75.53 a barrel in New York after earlier gaining as much as 0.5 percent. To contact the reporters for this story: Shiyin Chen in Singapore at schen37@bloomberg.net

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