By David Yong and Lilian Karunungan Aug. 22 (Bloomberg) -- Asian currencies declined for a second week, led by South Korea’s won and the Indian rupee, on concern tighter credit in China will curb spending in the world’s fastest-growing major economy. The Bloomberg-JPMorgan Asia Dollar Index, which tracks Asia’s 10 most-used currencies excluding the yen, this week reached its lowest level in a month as the Shanghai Composite Index of shares dropped 2.8 percent. China plans to tighten capital requirements for banks, threatening to curb the record lending that’s fueled a 63 percent rally in the nation’s stock benchmark this year, three people familiar with the matter said. “The concern about events in China is overshadowing the market even when there are signs of economic recovery,” said Mohd Yazid Safuan, head of treasury sales and trading at Al Rajhi Banking and Investment Corp. in Kuala Lumpur. “We are looking at better numbers in the U.S. going into 2010 and this should benefit” the region’s economies and currencies, he said. The won dropped 0.9 percent from the end of last week to 1,249.85 per dollar in Seoul, according to data compiled by Bloomberg. The rupee lost 0.7 percent to 48.605 and the Indonesian rupiah slid 0.6 percent to 10,015. Emerging-market equity funds recorded $946 million of outflows in the week ended Aug. 19, the most since December, according to EPFR Global, which tracks $10 trillion of assets worldwide. The MSCI Asia Pacific Index of stocks had a 2.7 percent weekly drop, its worst performance in two months, and the Asia Dollar Index slipped 0.1 percent. Lending Curbs The China Banking Regulatory Commission sent a draft of rule changes to banks on Aug. 19 that would exclude some types of debt from their capital, according to people who have seen the document. As a result, banks may need to rein in lending or sell shares to lift capital-adequacy ratios to the 12 percent mandated by the regulator. A drop in lending may curb demand for goods produced in the rest of Asia. China’s imports from the region climbed 13 percent to a record $703 billion in 2008, before slumping 29 percent from a year earlier to $252 billion in the six months through June. The nation, including Hong Kong, is the No. 1 export destination for Japan, South Korea and Taiwan. Weaker Won Korea’s currency dropped 0.2 percent yesterday after Standard & Poor’s said the nation faces an “event risk” related to possible leadership transition in North Korea, inhibiting its credit-rating outlook. Recovery in Asia’s fourth-largest economy “is mainly due to the fiscal expansion by the government,” Finance Minister Yoon Jeung Hyun said in Seoul yesterday. “The environment may see uncertainty for some time and recovery may not exceed the level of the pre-crisis level,” he said. The Philippine peso was little changed in offshore trading as local markets were shut for a holiday yesterday. The currency slumped 0.8 percent this week, the most in two months, after the government on Aug. 19 reported a budget deficit of 188 billion pesos ($3.9 billion) for the last seven months, equivalent to 75 percent of its full-year projection. Taiwan GDP The Taiwan dollar rose 0.2 percent yesterday to NT$32.906 after second-quarter gross domestic product figures showed the island is recovering from a recession. The economy contracted 7.5 percent from a year earlier, less than the 10.1 percent recorded for the first quarter and the 7.8 percent forecast by economists in a Bloomberg survey. The island’s currency was little changed this week. “We still see some upside for the Taiwan dollar,” said Suan Teck Kin, an economist in Singapore at United Overseas Bank Ltd. “I don’t see the central bank allowing the currency to strengthen very significantly. Exports are still very important to Taiwan.” Elsewhere, Thailand’s baht was little changed for the week at 34.01 per dollar and the Chinese yuan was at 6.8312, having barely moved from 6.8342 on Aug. 14. Malaysia’s ringgit gained 0.1 percent to 3.5125. To contact the reporter on this story: David Yong in Singapore at dyong@bloomberg.net;

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