Sun, Jul 04, 2004 - Page 10 News List

Asian stocks fall on Fed's interest rate hike

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Asian stocks fell this week, led by exporters such as TDK Corp and Samsung Electronics Co, amid concern that higher US interest rates would slow demand for the region's products.

The Morgan Stanley Capital International Asia-Pacific Index, which tracks 942 stocks in the region, declined for the second week in three, shedding 0.5 percent. South Korea's Kospi slid 3 percent, while Japan's Nikkei 225 Stock Average lost 0.5 percent.

The US Federal Reserve on Wednesday lifted its key lending rate by a quarter of a percentage point. The central bank reiterated that it will boost rates at a "measured" pace as long as inflation remains "relatively low."

"This was arguably one of the most anticipated rate hikes in the history of monetary policy adjustment," said Simon Doyle, who helps manage US$4.5 billion as a strategist at Schroder Investment Management Australia Ltd in Sydney. "Interest rates took center stage this week."

The Standard & Poor's 500 index fell for the third straight week, shedding 0.8 percent. The Dow Jones Industrial Average slid 0.9 percent, its second weekly fall. The NASDAQ Composite Index fell 0.9 percent, its second weekly fall in three.

Chipmakers including Samsung Electronics also declined after Morgan Stanley said that Intel Corp's revenue may miss forecasts.

TDK Corp, Japan's largest maker of magnetic parts for hard-disk drives, fell 5.3 percent this week to ¥8,090.

The company gets two-thirds of its sales from abroad. Toshiba Corp, the world's second-largest maker of flash-memory chips, dropped 5 percent to ¥435.

Australia's News Corp, the world's fifth-biggest media company, shed 0.5 percent to A$12.59. The company makes about three-quarters of its sales in the US.

Hong Kong's Li & Fung Ltd, which buys Asian-made clothing for US clients including Reebok International Ltd and Abercrombie & Fitch Co, declined 0.9 percent to HK$11.30.

Yue Yuen Industrial (Holdings) Ltd, which makes athletic footwear for clients including Nike Inc, fell 2.1 percent to HK$18.50.

The 25-basis point increase in the US matched the forecast by 138 of 143 economists surveyed by Bloomberg News, and 22 of 23 of Wall Street's largest bond firms predicted the central bank would maintain its call for "measured" rate rises.

"Interest rates are still the biggest risk for the market," said Lawrence Lai, who manages US$100 million at Lotus Asset Management Ltd in Hong Kong. Aggressive statements from the Fed would have caused markets to "tank a bit further," he said before the rate decision.

The Hong Kong Monetary Authority raised its base rate for overnight lending by 25 basis points to 2.75 percent after the Fed's increase. The Hong Kong dollar is pegged to the US dollar under a currency-board system, which means any rise in US rates almost always prompts an increase in Hong Kong.

Samsung Electronics, the world's largest semiconductor maker after Intel and South Korea's largest exporter, slumped 7.9 percent this week to 444,000 won.

Tokyo Electron Ltd, the world's second-largest maker of computer chip-making equipment, fell 2.5 percent to ¥5,910.

Intel, when it releases second-quarter earnings July 13, will provide a range of forecasts for third-quarter revenue.

The midpoint of the range probably will be US$8.5 billion to US$8.6 billion, people familiar with comments made by Morgan Stanley analyst Mark Edelstone said Thursday. That's below Morgan Stanley's forecast of US$8.7 billion and less than the average analyst estimate of US$8.75 billion.

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