Asian Stocks Drop as Investors Weigh U.S. Debt Limit

Asian stocks dropped, extending last week's loss, as U.S. lawmakers wrangle over the debt limit and government shutdown. Utilities and materials companies led declines.

Tokyo Electric Power Co., the owner of the crippled Fukushima Dai-Ichi nuclear power plant, sank 6.8 percent after an official said Japan may create an agency to decommission reactors. Innolux Corp., a display maker, slumped 4.6 percent in Taipei. LG Uplus Corp. advanced 3.6 percent in Seoul, leading gains for the telecommunication services group of the Asian regional benchmark index.

The MSCI Asia Pacific Index dropped 0.2 percent to 138.85 as of 10:15 a.m. in Tokyo. The gauge lost 1.2 percent last week, the first weekly drop in more than a month, as the partial U.S. government shutdown stoked concern lawmakers won't be able to agree on raising the nation's $16.7 trillion borrowing limit later this month.

"The U.S. situation is clearly abnormal and the uncertainty doesn't make things easier for investors in risk assets," said Masaru Hamasaki, a senior strategist at Tokyo-based Sumitomo Mitsui Asset Management Co., which oversees about 11.2 trillion yen ($115 billion) in assets. "If the U.S. defaults and misses paying its bills even just for a few days, the market will turn chaotic."

U.S. Speaker John Boehner said yesterday the House can't pass an increase to the debt ceiling without packaging it with other provisions -- a nonstarter for President Barack Obama.

Regional Gauges

Japan's Topix index fell 0.4 percent. Financial markets in China are closed for a holiday today. South Korea's Kospi index added 0.1 percent. New Zealand's NZX 50 Index gained 0.3 percent. In Australia, where many businesses are closed for Labour Day, the S&P/ASX 200 Index fell 0.1 percent on trading volumes about 70 percent below the 30-day average for this time of day.

Futures on the Standard & Poor's 500 Index slumped 0.5 percent today. The gauge dropped for a second week last week as the first partial government shutdown in 17 years began.

Treasury Secretary Jacob J. Lew said Congress needs to pass a debt-ceiling increase by Oct. 17 or the U.S. will be "dangerously low" on cash and risk defaulting on its payments. Federal Reserve Bank of San Francisco President John Williams estimated a two-week government halt would shave 0.25 percentage point off fourth-quarter economic growth.

The shutdown delayed the release of the Labor Department's monthly payrolls report, which was due Oct. 4.

"Markets need to be aware that the impasse on Capitol Hill is far from being resolved," Evan Lucas, Melbourne-based market strategist at IG Ltd. said in a note today. "The shutdown stalemate continues to ebb and flow and is disruptive."

The MSCI Asia Pacific Index traded at 13.4 times estimated earnings as of Oct. 4, compared with 15.2 for the S&P 500 and 14.1 for the Stoxx Europe 600 Index, according to data compiled by Bloomberg.