By James Poole and Jonathan Burgos March 11 (Bloomberg) -- Metals dropped and Asian stocks erased gains, while the yen and dollar strengthened, after reports on Chinese inflation, factories and loans raised concerns the government would take steps to cool the economy. Copper for three-month delivery dropped 0.6 percent to $7,397 a metric ton and Standard & Poor’s 500 futures lost 0.5 percent by 2 p.m. in Tokyo. The MSCI Asia Pacific Index was little changed at 122.64, the yen climbed to 123.28 per euro from 123.62 in New York yesterday, and the Australian dollar fell for the first time in five days. China’s consumer prices hit a 16-month high of 2.7 percent in February, increasing pressure on Premier Wen Jiabao who vowed to suppress inflation after banks flooded the financial system with money to drive a rebound from the global recession. The increase compared with the 2.5 percent median estimate of 29 economists surveyed by Bloomberg News. “Accelerating inflation in China raises the possibility of an interest-rate hike,” said Terrace Chum, who helps manage over $5 billion for MFC Global Investment Management in Hong Kong. “The government wants to prevent the economy from over- heating. It may slow growth, but the recovery is on track.” China’s stocks fell to a one-week low. The Shanghai Composite Index fell 19.53, or 0.6 percent, to 3,029.39 at the 11:30 a.m. local-time break, reversing an earlier 0.7 percent advance. The gauge lost 7.6 percent this year on concern measures to curb property price gains and rein in lending growth will slow the economy. Possible ‘Overheating’ “The market’s reading of the economic data points to overheating and a lot of investors believe an interest-rate increase will come soon,” said Yan Ji, who helps oversee about $1.2 billion at HSBC Jintrust Fund Management Co. in Shanghai. Asian stocks fluctuated as commodity-related companies fell on concern China will pare back measures that boosted growth, while Japanese shares gained on speculation the country’s economy is recovering. BHP Billiton Ltd., the world’s largest mining company, dropped 1 percent in Sydney, and Posco, South Korea’s biggest steelmaker, retreated 1.3 percent in Seoul after the China inflation data. Sony Corp. climbed 1.5 percent in Tokyo after the Nikkei newspaper said the Japanese government will boost its economic outlook. The yen rose after the Chinese inflation report, which sparked demand for Japan’s currency as a refuge. The Japanese currency also gained on speculation the nation’s companies repatriated overseas earnings after the yen fell to a two-week low against the euro yesterday. Stronger Yen Japan’s currency strengthened against all 16 of its major counterparts amid speculation exporters brought funds home before the fiscal year ends this month. Australia’s dollar fell from a seven-week high after the nation’s employers added fewer jobs than economists forecast, damping expectations the Reserve Bank of Australia will raise interest rates in April. “Strong inflation data should enhance pressure for tightening in China,” said Minoru Shioiri, chief manager of foreign-exchange trading at Mitsubishi UFJ Securities Co. in Tokyo. “The bias is for the yen to rise.” The yen climbed to 123.07 per euro from 123.62 in New York yesterday, when it fell to 124.00, the lowest level since Feb. 23. Japan’s currency advanced to 90.25 per dollar from 90.52. The greenback traded at $1.3637 per euro from $1.3657, and was at $1.4956 per pound from $1.4978. The Australian dollar dropped to 91.20 U.S. cents from as much as 91.93 yesterday, the most since Jan. 20. Australia’s currency declined 0.7 percent to 82.33 yen. New Zealand’s dollar fell 0.5 percent to 69.86 U.S. cents. Repatriating Yen “Japanese exporters may be repatriating yen, given the March fiscal year-end is approaching,” said Masanobu Ishikawa, general manager of foreign exchange at Tokyo Forex & Ueda Harlow Ltd., Japan’s largest currency broker. “There’s talk they may be behind their sales of euro-yen.” Australia’s dollar fell after a statistics bureau report today showed employers added 400 jobs in February, the smallest increase in six months. The median estimate of 25 economists surveyed by Bloomberg called for an increase of 15,000. The Markit iTraxx Asia index of credit-default swaps on 50 investment-grade borrowers outside Japan increased 1 basis point to 93 basis points as of 8:12 a.m. in Singapore today, Royal Bank of Scotland Group Plc prices show. Risk benchmarks for Australia and Japan were little changed. The extra yield investors demand to own corporate bonds rather than government debt fell yesterday to 159 basis points, or 1.59 percentage point, the lowest level this year, the Bank of America Merrill Lynch Global Broad Market Corporate Index shows. Yields averaged 4.035 percent. To contact the reporter for this story: James Poole in Singapore jpoole4@bloomberg.net;

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