By Darren Boey and Masaki Kondo June 22 (Bloomberg) -- Asian stocks fell for the first time in nine days and the euro weakened against the yen after a European central banker said the region’s financial institutions face funding difficulties. The yuan declined. The MSCI Asia Pacific Index lost 0.6 percent to 118.45 as of 1:28 p.m. in Tokyo, following an eight-day rally that boosted the value of global equities by $3 trillion. Standard & Poor’s 500 Index futures were little changed. The yen traded at 111.96 per euro in Tokyo from 112.18 in New York yesterday. China’s yuan had its biggest loss since December 2008 on speculation the central bank will encourage more two-way fluctuations after pledging to expand flexibility. Investor sentiment worsened as European Central Bank governing council member Christian Noyer said some banks are facing funding problems and Standard & Poor’s Ratings Services said Spanish lenders face difficult years as credit losses mount. Economists surveyed by Bloomberg predict Germany’s Ifo institute will say today its business climate index fell in June. “Europe’s problems still haven’t been solved and people are in no mood to take on risk,” said Hiroshi Morikawa, a strategist in Tokyo at MU Investments Co., which manages $14 billion. “Investors are worried developed nations won’t be able to support their economies with any large-scale loosening of monetary and fiscal policies” because of rising government debt. Hang Seng, Nikkei Two stocks declined for every one that advanced on the MSCI Asia index, which rallied 2.6 percent yesterday after China relaxed its currency’s peg to the dollar. Hong Kong’s Hang Seng Index was little changed following yesterday’s 3.1 percent surge. Japan’s Nikkei 225 Index fell 1.1 percent. Australia’s S&P/ASX 200 Index slid 0.9 percent. Companies with European sales fell after Fitch Ratings cut its long-term credit rating on BNP Paribas, France’s largest bank, citing a “deterioration” of the company’s asset quality. The report came as Standard & Poor’s lowered its economic growth forecast for Spain to an average of 0.7 percent a year through 2016 from 1 percent, saying Spanish banks face mounting credit losses and “substantial strain” on revenue generation. Canon Inc., a Japanese camera maker that counts Europe as its biggest market, lost 2.5 percent to 3,790 yen in Tokyo. Nintendo Co., a game-console maker that generates about a third of its sales in Europe, sank 3.5 percent to 28,250 yen. “We have to remain vigilant about Europe’s situation,” said Fumiyuki Nakanishi, a strategist at SMBC Friend Securities Co. in Tokyo. “A country’s fiscal position doesn’t turn around in just one or two days.” MSCI Decision South Korea’s Kospi Index slid 0.6 percent as MSCI Inc. skipped upgrading the country’s equities from its emerging- market status for a second year. The decision means the nation will lose out on purchases of equities by investors who are restricted to developed-nation equities because of their perceived lower risk. Samsung Electronics Co., the world’s second-largest mobile- phone maker, lost 1.6 percent to 817,000 won, and Hyundai Mobis Co., the nation’s biggest auto-parts maker, declined 2.9 percent to 203,000 won. Japan’s yen rose versus 14 of 16 major counterparts as concern about banks’ funding ability and fiscal discipline among European sovereigns weighed on sentiment. “Some banks have started facing increasing funding problems,” the ECB’s Noyer said at a conference in Paris. “The situation reflects a general state of uncertainty which, left unchecked, could have significant consequences on financial stability and the real economy, as was the case during the last part of 2008.” ECB President Jean-Claude Trichet said nations in breach of European Union fiscal rules may face tougher punishment. Yen, Euro The yen touched 111.49 per euro yesterday, the highest level since June 15. Japan’s currency was at 90.95 per dollar from 91.11. The euro bought $1.2305 from $1.2312 yesterday, when it reached $1.2487, the strongest since May 24. South Korea’s won slid 1 percent to 1,183.70, retreating from a one-month high, on speculation policy makers will seek to limit currency appreciation after China yesterday scrapped a two-year peg to the dollar. The Malaysian ringgit also dipped 0.4 percent to 3.197 per dollar. The yuan declined 0.17 percent to 6.8091 per dollar, according to the China Foreign Exchange Trade system, after climbing 0.42 percent yesterday following the shift in currency policy. China’s central bank set its daily reference rate for yuan trading 0.43 percent stronger today, the biggest gain in five years, reflecting yesterday’s appreciation. “There is bigger two-way fluctuation, which is quite normal,” said Lu Zhengwei, an economist at Industrial Bank Co. in Shanghai. “The reference rate shows it is now based on market demand and supply, and no longer strictly controlled.” Oil for July delivery traded fell 0.6 percent to $77.39 a barrel in New York, while copper futures in London dropped 0.3 percent t0 $6,587 a metric ton as optimism faded that the change to China’s yuan policy will strengthen the global economic recovery. The cost of protecting Asia-Pacific corporate and sovereign bonds from non-payment rose, according to traders of credit- default swaps. The Markit iTraxx Asia index of 50 investment- grade borrowers outside Japan advanced 3 basis points to 121 basis points, Barclays Plc prices show. To contact the reporters for this story: Darren Boey in Hong Kong at dboey@bloomberg.net; Masaki Kondo in Tokyo at mkondo3@bloomberg.net.

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