By Shani Raja March 10 (Bloomberg) -- Asian stocks fell the most in more than two weeks as violence in Libya drove up oil prices and central banks from South Korea to Thailand raised interest rates. The MSCI Asia Pacific Index slumped 1.4 percent to 136.48 as of 2:06 p.m. in Tokyo, paced by the Nikkei 225 Stock Average after a government report showed Japan’s economy shrank more than estimated. Standard & Poor’s 500 Index futures lost 0.6 percent after the gauge was little changed in New York yesterday. Oil climbed for the first time in three days in New York, with crude for April delivery rising to $104.79 as of 1:19 p.m. in Singapore from $104.38 yesterday. The decline in stocks erased this year’s Asian gains as Libyan leader Muammar Qaddafi’s forces carried out air and artillery strikes on central oil facilities, while South Korea’s central bank joined Vietnam and Thailand in raising interest rates to combat quickening inflation. “Libya is chaotic and a sense of uncertainty for the future is increasing even in countries surrounding Libya,” said Mitsushige Akino, who oversees about $450 million in Tokyo at Ichiyoshi Investment Management Co. “It’s hard to know how high oil prices will go and how much that will damage the economy.” About four times as many stocks dropped as gained on the MSCI Asia Pacific Index, with all 10 industry groups declining, led by materials companies. The Nikkei 225 sank 1.3 percent in Tokyo after the Cabinet Office said Japan’s gross domestic product shrank at an annualized 1.3 percent rate in the three months ended Dec. 31. The median forecast of 26 economists surveyed by Bloomberg News was for a 1.2 percent contraction. Australian Jobs The S&P/ASX 200 Index slid 1.3 percent in Sydney after a report showed Australian employers unexpectedly cut workers in February for the first time in 18 months. Chiyoda Corp., the Japanese contractor that gets almost half of its revenue from the Middle East, slumped 4.2 percent in Tokyo. Toyota Motor Corp., the world’s largest automaker, slipped 2 percent. BHP Billiton Ltd., the world’s biggest mining company and Australia’s No. 1 oil producer, retreated 3.1 percent in Sydney after copper futures fell on concern demand will wane as higher energy costs slow growth. FAW Car Co. and Anhui Jianghuai Automobile Co. led declines among Chinese automakers after the China Association of Automobile Manufacturers said domestic sales grew at the slowest pace in more than two years. FAW Car, which makes passenger cars in China with Volkswagen AG, dropped 3.1 percent to 17.74 yuan. Anhui Jianghuai, a unit of China’s biggest light-truck exporter, slid 2.9 percent to 13.35 yuan. At the same time, confidence in the resilience of the global economy is spurring mergers and acquisitions. Tokyo Stock Exchange Group Inc. said it plans to hold merger talks with Osaka Securities Exchange Co., while Rio Tinto Group, the world’s second-largest mining company, raised its bid for Riversdale Mining Ltd. Mining Offer Rio Tinto increased its offer by 3 percent to A$3.9 billion ($3.9 billion) as share purchases by steelmakers threaten to scuttle the deal. Tokyo Stock Exchange President Atsushi Saito said in an interview that the company, which runs the main venue in the world’s second-largest equity market, plans to hold merger talks with Osaka Securities, which operates a derivatives trading platform that features Nikkei 225 Stock Average futures as its main product. U.S. stocks fell yesterday in New York, sending the S&P 500 Index lower for a third time in four days, as escalating violence in Libya tempered optimism that the biggest equity rally since 1955 will extend into a third year. Korean Rates The Bank of Korea’s decision to raise the benchmark interest rate today was forecast by all 15 economists surveyed by Bloomberg News. The Bank of Thailand raised its one-day bond repurchase rate by a quarter of a percentage point yesterday. The People’s Bank of China raised the yield on three-month bills for the second consecutive week, increasing speculation that policy makers will increase benchmark interest rates to cool inflation. The central bank sold 32 billion yuan ($4.9 billion) of 91- day bills at a yield of 2.7944 percent in open-market operations today, according to a trader at a primary dealer required to bid at the auctions. That’s higher than the 2.6314 percent yield on debt it sold on March 3, according to data provided by the People’s Bank. “We would read the rise in the three-month yield, based on historical precedence, as an indication that the central bank is looking to push up interest rates,” said Wee-Khoon Chong, a fixed-income strategist at Societe Generale SA in Hong Kong. He said a rate increase may take place in April. Libya Fighting Brent crude oil climbed after Qaddafi stepped up attacks on rebels, increasing concern civil unrest may spread and disrupt production in North Africa and the Middle East. It rose 0.4 percent to $116.34 a barrel. “The Libya situation is the biggest market concern,” said Naoteru Teraoka, general manager at Tokyo-based Chuo Mitsui Asset Management Co., which oversees about $28 billion. “We can’t know if this unrest will spill over to Saudi Arabia, or if Libyan exports will stop. Those would certainly have a negative impact on the global economy.” Zinc for three-month delivery advanced 0.4 percent to $2,282.50 a metric ton after dropping 5.1 percent yesterday, the most since Nov. 16. The Markit iTraxx Asia index of credit-default swaps rose 1 basis point to 107.5 basis points, Credit Agricole CIB prices show. The risk benchmark is heading for its biggest daily increase since Feb. 22 after the cost of contracts on European governments climbed yesterday, according to data provider CMA in New York. Ireland Swaps Five-year swaps on Greece rose 6 basis points to 1,034 basis points yesterday, the highest since Jan 10, after Moody’s Investors Service lowered the sovereign’s ratings three steps. Swaps on Ireland, which became the second nation to request an EU bailout after the government was nearly sunk by the weight of guaranteeing its banking system’s debt in November, rose 6 basis points to 587 and imply an almost 40 percent likelihood of default within five years, according to CMA. The U.S. dollar was at $1.3875 per euro from $1.3909 yesterday, when it reached $1.3856, the strongest since March 3. The euro traded at 114.93 yen from 115.08 yen. Gains in the euro were tempered before European Union leaders meet to discuss the crisis that caused Greece and Ireland to request financial aid. EU Talks “Event risk for the euro is building with European leaders meeting on March 11 to start talks on producing a more robust response to the sovereign-debt crisis,” John Kyriakopoulos, Sydney-based head of currency strategy at National Australia Bank Ltd., wrote in a note to clients today. “Initial support is at $1.3850.” New Zealand’s currency was close to the weakest level in five months after the central bank cut the benchmark interest rate to match a record low to help the economy recover from its deadliest earthquake in 80 years. Australia’s dollar fell against all its major counterparts on the data showing employers unexpectedly cut jobs in February. New Zealand’s dollar was at 73.52 U.S. cents from 73.66 cents yesterday, when it touched 73.36 cents, the lowest since Oct. 1. Australia’s currency slipped to $1.0051 from $1.0108 in New York yesterday after falling to $1.0054 on March 8, the weakest since Feb. 24. Yuan forwards weakened after China reported a surprise trade deficit for February. Twelve-month non-deliverable forwards were 0.09 percent lower at 6.4245 per dollar as of 11:16 a.m. in Hong Kong, having traded at 6.4170 before the data were published. China reported a $7.3 billion trade deficit for February after the Lunar New Year holiday disrupted exports. That compares with a $6.5 billion surplus for January and the median $4.9 billion surplus estimate of economists surveyed by Bloomberg. Exports increased 2.4 percent from a year earlier and imports climbed 19.4 percent, the customs bureau said. --With assistance from Ron Harui in Singapore, Monami Yui and Norie Kuboyama in Tokyo, Ben Sharples in Melbourne and Sarah McDonald in Sydney. Editors: Will McSheehy, Patrick Chu To contact the reporter on this story: Shani Raja in Sydney at sraja4@bloomberg.net To contact the editor responsible for this story: Will McSheehy at wmcsheehy@bloomberg.net

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