By Darren Boey and Kana Nishizawa Jan. 26 (Bloomberg) -- Asian stocks declined, on track for the longest losing streak in two years, commodities fell and the dollar strengthened on concerns China will slow the world’s fastest-growing major economy. The MSCI Asia Pacific Index descended for a seventh day, dropping 2 percent to 119.01 as of 5 p.m. in Tokyo, the lowest since Dec. 23. The Hang Seng Index lost 2.6 percent to 20,067.38, extending its drop from a November high to 13 percent. Futures for the Standard & Poor’s 500 Index slid 0.8 percent. The Dow Jones Stoxx 600 decreased 0.4 percent to 247.36. The dollar rose 0.5 percent against the euro. Yields on 10-year Treasuries fell 5 basis points to 3.58 percent, the lowest in about five weeks. Goldman Sachs Group Inc. downgraded Chinese bank stocks, citing a slowdown in economic growth and higher borrowing costs that are “capping valuations until these overhangs are resolved.” China’s economy, which expanded 10.7 percent in the fourth quarter, has led the recovery from the global recession. “The market is having trouble rebounding from its slump because of all the uncertainties,” said Koji Toda, chief fund manager at Resona Bank Ltd., which holds about $55 billion. “People are still worried, and yet clinging to the hope that policy support will continue to drive the global recovery.” The Shanghai Composite Index plunged 2.4 percent. Bank Of China Ltd., the nation’s third-largest lender, declined 3.2 percent to HK$3.69 and Bank of Communications Co. fell 3.8 percent to HK$7.87. Bank of China was cut to “neutral” from “buy,” while BoCom was cut to “sell” from “neutral” at Goldman Sachs. Banks Hit Banks have suspended new lending since Jan. 19 across the country, Dong Tao, a Hong Kong-based economist at Credit Suisse Group AG, wrote in a note to clients. The central bank raised the proportion of deposits banks must set aside as reserves on Jan. 12. China’s seven-day repurchase rate, which measures the cost of borrowing money in the country’s interbank market, climbed 30 basis points to 1.64 percent, the biggest increase in a month. The Nikkei 225 Stock Average fell 1.8 percent in Japan, where the central bank held interest rates near zero and said it remains committed to fighting deflation. South Korea’s Kospi Index dropped 2 percent, while Taiwan’s Taiex Index sank 3.5 percent. Foxconn International Holdings Ltd., which makes mobile phones, fell 7.6 percent to HK$8.18 in Hong Kong after saying it expects a “significant” decline in profit for 2009. Japan Ratings The yen erased its gain against the dollar after Standard & Poor’s cut its sovereign rating outlook to negative. Japan’s currency strengthened to 90.15 per dollar from 90.28 in New York yesterday. It traded earlier today at 89.56. “The market remains very sensitive to signs of China’s tightening, which revive risk aversion and cause the yen to be bought back,” said Masato Mori, senior manager of the business and marketing department at NTT SmartTrade Inc., a unit of Nippon Telegraph & Telephone Corp. “This is part of the Chinese government’s efforts to keep the economy from overheating while securing growth.” The benchmark U.S. 10-year note yield fell four basis points to 3.60 percent, according to BG Cantor Market Data. The 3.375 percent security due November 2019 rose 9/32, or $2.81 per $1,000 face amount to 98 6/32. Copper, aluminum, nickel and lead declined on the London Metal Exchange. Copper for three-month delivery dropped 1.7 percent to $7,340 a metric ton, extending earlier losses, aluminum fell 0.9 percent to $2,221 a ton, nickel declined 1.1 percent to $17,950 and lead lost 2.6 percent to $2,162. Platinum for immediate delivery lost 1.2 percent to $1,530.50 an ounce and gold declined 0.3 percent to $1,095.25. The metal, which touched a record $1,226.56 last month, slumped to a one-month low of $1,081.95 an ounce Jan. 22. Oil Falls Crude oil declined 1.1 percent to $74.42 a barrel in New York after-hours trading. “China tightening their monetary policy is sending a signal,” said Clarence Chu, a trader with options dealers Hudson Capital Energy in Singapore. “Demand is growing, but not as fast as previously expected.” The cost of protecting Asian bonds from non-payment increased, according to traders of credit-default swaps. The Markit iTraxx Asia index of 50 investment-grade borrowers outside Japan rose 4 basis points to 105 basis points as of 8:18 a.m. in Singapore, Royal Bank of Scotland Group Plc prices show. The risk benchmark is on track for its highest close since it climbed to 108 basis points on Jan. 22, according to CMA DataVision prices in New York. To contact the reporter for this story: Darren Boey in Hong Kong at dboey@bloomberg.net.

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