HONG KONG (Bloomberg) -- Asian stocks fell, with the benchmark index set for its steepest weekly decline in a month, on concern losses from U.S. sub-prime-mortgage investments will widen.

Commonwealth Bank of Australia paced financial shares lower after the New York Times said Merrill Lynch & Co. may report $15 billion in write-downs, almost twice its original estimate. Japan’s Seven & I Holdings Inc. dropped after cutting profit forecasts. Stocks had risen earlier after the U.S. Federal Reserve signaled it may cut interest rates to bolster growth.
“Any sub-prime losses would drive the markets,” said Nicole Sze, a Singapore-based investment analyst at Bank Julius Baer & Co. which manages $350 billion in assets worldwide. “There is a concern whether a U.S. interest rate cut will be sufficient to turn the tide.”
The MSCI Asia Pacific Index fell 0.9 percent to 151.82 at 7:22 p.m. in Tokyo with all 10 industry groups dropping. Japan’s Nikkei 225 Stock Average retreated 1.9 percent. China’s CSI 300 Index rose 0.5 percent after the country’s trade surplus narrowed, reducing the likelihood of more measures to slow the economy as export growth weakens.
The Nikkei 225 has dropped 7.8 percent in 2008, its worst start to the year since 1997, on concern Japan and the U.S., the world’s two largest economies, are headed for recession. The losses eroded Japan’s stock-market capitalization to $4.4 trillion this year to Jan. 10, helping China overtake the nation as the world’s second-largest stock market by value.
--------------------------------- Finance stocks decline
The CSI 300 Index has gained 6.8 percent in Shanghai in the same period, helping push the value of China’s companies to $4.7 trillion. The U.S. stock market remains the world’s largest with a capitalization of $16.9 trillion.
An index of finance stocks on MSCI’s regional benchmark fell 0.9 percent, after earlier rising 0.3 percent. Commonwealth Bank of Australia, the nation’s second-largest, slid 1.9 percent to A$55.89. Mitsubishi UFJ Financial Group Inc., Japan’s largest bank by market value, slid 1.2 percent to 1,012 yen.
DBS Group Holdings Ltd., Singapore’s biggest lender, fell 1.2 percent to S$19.84.
The New York Times reported the planned Merrill Lynch write-downs on its website, citing people it didn’t identify. The world’s biggest banks and securities firms have posted $97 billion in losses and write-downs on sub-prime-related assets, according to Bloomberg calculations.
Japanese real estate managers fell after rival Asset Managers Co. cut its full-year net income forecast by 42 percent, raising concerns that U.S. credit-market losses will spread and damp profitability.
------------------------------------ ‘Cloud’ over markets
Asset Managers tumbled 15 percent to 110,000 yen. K.K. DaVinci Advisors, which runs Japan’s biggest real estate fund, plunged 11 percent to 83,700 yen. Creed Corp. fell 19 percent to 174,000 yen.
“The cloud over worldwide capital markets is obviously the sub-prime issue,” said Yuuki Sakurai, who helps manage the equivalent of $41.5 billion in assets at Fukoku Mutual Life Insurance Co. in Tokyo.
The MSCI Asia Pacific Index has dropped 2.7 percent in the past five days, the most since the period ended Dec. 14, as economic reports heightened concern the U.S. economy is headed for a recession amid a housing slump.
Federal Reserve Chairman Ben S. Bernanke said Thursday that recent figures suggested the outlook for “2008 has worsened and the downside risks to growth have become more pronounced.” More cuts to the Fed’s key lending rate may be necessary, he said.
------------------------------------------ Lower profit forecasts
“I’m not optimistic about the U.S. economy,” said Pauline Dan, who helps manage $2.5 billion at Manulife Asset Management in Hong Kong. “I believe in the consensus that it is heading for a recession.”
Seven & I, the operator of 7-Eleven convenience stores, plunged 6.3 percent to 2,885 yen, its biggest drop since it was formed as a holding company in September 2005. The retailer lowered its full-year net income forecast 12 percent on costs to introduce an electronic-payment system.
J. Front Retailing Co. tumbled 11 percent to 833 yen, sliding by the exchange-imposed daily limit. The department-store operator also cut its full-year net income forecast 12 percent, citing lower-than-expected revenue.
Shanghai Pudong Development Bank Co., part-owned by Citigroup Inc., gained 8.1 percent to 61.59 yuan, the most since July 20. China Vanke Co., the nation’s largest publicly traded property developer, rose 1.7 percent to 31.06 yuan.