By Shiyin Chen and Shani Raja Nov. 23 (Bloomberg) -- Stocks and U.S. futures dropped while the dollar and Swiss franc strengthened after North and South Korea exchanged artillery fire. Metals slumped as banks in China approached the limit of lending quotas that may restrict credit in the world’s fastest growing economy. The MSCI Asia-Pacific excluding Japan Index declined 2.2 percent to 454.72 as of 3:45 p.m. in Hong Kong, set for its biggest loss since June 29. Futures on the Standard & Poor’s 500 and Euro Stoxx 50 indexes sank 0.9 percent. The U.S. currency rose against all of its 16 major counterparts except the franc as the Korean crossfire fueled demand for safer assets. The S&P GSCI Index of commodities slipped for a third day. North Korea fired “several” artillery shells into South Korea near the nations’ western border, prompting a return of fire, the South’s Joint Chiefs of Staff said in a statement today. The confrontation added to losses on Asian markets after Moody’s Investors Service warned it may downgrade Ireland and as investors speculated China may intensify its policy tightening efforts to contain inflation. “A bubbling over of tensions in Korea is another layer of uncertainty for markets that they don’t need to contend with,” said Tim Schroeders, who helps manage about $1 billion at Pengana Capital Ltd. in Melbourne. “There’s enough going on in terms of European debt problems and Chinese inflation without having to deal with erupting geopolitical tensions.” South Korea’s Kospi index fell 0.8 percent, while the won closed 1 percent lower at 1,137.49. After the market close in Seoul, the nation’s Joint Chiefs of Staff said in a statement that its military has been put on high alert and will “respond strongly” to further provocation. The one-month non-deliverable contract for the won tumbled as much as 5.1 percent. Dollar, Franc Tensions with nuclear-armed North Korea have risen this year following the sinking of a South Korean warship in March that the U.S. and its allies blamed on a torpedo attack. President Barack Obama dispatched his envoy for the country, Stephen Bosworth, to Asian capitals this week after reports by a U.S. scientist that North Korea had revealed to him a “stunning” new uranium-enrichment plant. The U.S. dollar appreciated to $1.3560 per euro from $1.3627 in New York yesterday. It rose to 83.69 yen from 83.33 yen. The franc strengthened to 1.3406 per euro from 1.3484. The euro weakened after Irish Prime Minister Brian Cowen said he would seek national elections early next year once his government passes its 2011 budget. The announcement came hours after the Green Party said it would pull out of the ruling coalition following the budget vote, saying Cowen misled voters in negotiating the bailout. ‘Struggling’ Euro “The risk to markets is that no one knows if the new government next year will stick to the budget that will be announced later this year,” said Greg Gibbs, a currency strategist at Royal Bank of Scotland Group Plc in Sydney. “Political uncertainty has caused the positive response out of the package to be short-lived. The euro is struggling.” Standard Chartered Plc, which received 10 percent of its 2009 revenue from Korea, slid 3 percent in Hong Kong, where the Hang Seng Index dropped 2.6 percent. China’s Shanghai Composite Index declined 1.9 percent, paced by Agricultural Bank of China Ltd.’s 1.1 percent loss. China’s largest banks are close to reaching annual lending quotas and plan to stop extending credit to avoid breaching the limits, four people with knowledge of the matter said. PetroChina Co., the nation’s largest oil producer, sank 2.9 percent in Shanghai while Jiangxi Copper Co. dropped 5.3 percent after the People’s Daily newspaper said that the government must “temporarily” intervene to control prices where necessary. BHP Billiton Ltd., the world’s biggest mining company, fell 1.7 percent in Sydney. Metals, Oil Fall The S&P GSCI Index fell 0.7 percent, extending a two-day, 1.2 percent drop. Copper and zinc also retreated for a third day in London, declining as much as 2.2 percent each. Crude oil slumped 0.6 percent to $81.23 a barrel in New York after earlier gaining as much as 0.4 percent. China’s benchmark money-market rate rose to the highest in almost seven weeks on speculation policy makers will lift borrowing costs after raising banks’ reserve requirements last week to tame inflation. The seven-day repurchase rate, which measures lending costs between banks, advanced by 2 basis points to 2.22 percent, the highest since Oct. 8, according to the National Interbank Funding Center. --With assistance from Ron Harui, Wes Goodman and David Yong in Singapore, Frances Yoon in Seoul, Ben Sharples in Melbourne, Sarah McDonald in Sydney, Nicholas Reynolds in Tokyo and Nick Gentle and Sonja Cheung in Hong Kong. Editors: Shiyin Chen, Will McSheehy To contact the reporters on this story: Shiyin Chen in Singapore at schen37@bloomberg.net; 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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