Asian stocks dropped, with the regional benchmark index heading for its lowest close in four months, as Hong Kong shares slumped amid the biggest police crackdown on protesters since the city returned to Chinese rule.

HSBC Holdings Plc was the biggest drag on the Hang Seng Index after lenders shuttered some branches in Hong Kong following weekend clashes with police. Chow Tai Fook Jewellery Group Ltd. fell 4 percent, pacing losses among the city’s retailers.

Treasury Wine Estates Ltd. sank 8.5 percent in Sydney after ending takeover talks with private equity suitors. Sony Corp. paced gains among Japanese exporters as the yen weakened.

The MSCI Asia Pacific Index dropped 0.7 percent to 141.09 as of 4:06 p.m. in Hong Kong, heading for the lowest close since May 23. The measure slid 1.7 percent last week amid concern Chinese economic growth is slowing and that the Federal Reserve may increase U.S. interest rates sooner than some investors are expecting. The Hang Seng Index dropped 1.9 percent today as a gauge of stock volatility surged the most since August 2011.

Added Uncertainty

The protests are “going to spook some investors who are worried that this could drag out, affecting the business climate in Hong Kong,” Vasu Menon, vice president of wealth management at Oversea-Chinese Banking Corp., said in a Bloomberg TV interview from Singapore. “It’s happening at a time when the U.S. Federal Reserve is talking about tightening monetary policy, a time when China is slowing down. So now you have a third layer of uncertainty weighing on the Hong Kong stock market and it’s something investors could do without at this stage.”

South Korea’s Kospi index and Taiwan’s Taiex index both lost 0.3 percent. Singapore’s Straits Times Index fell 0.1 percent. Australia’s S&P/ASX 200 Index slipped 0.9 percent. New Zealand’s NZX 50 Index added 0.1 percent. China’s Shanghai Composite Index gained 0.4 percent. Japan’s Topix index rose 0.4 percent as the yen weakened 0.3 percent to 109.61 per dollar after dropping 0.5 percent on Sept. 26.

Market Volatility

“We’ll probably get a little bit more market volatility,” Toby Lawson, head of futures, options and cash equities trading for Asia-Pacific at Newedge Group SA in Sydney, said by phone. “The U.S. economy is overriding market sentiment amid concern the Fed might expedite an early tightening. The Hong Kong situation could also have a significant impact. China is slowing down and most economists are revising their growth forecast.”

U.S. gross domestic product expanded an annualized 4.6 percent in the second quarter, the fastest pace since 2011, according to a report last week, fueling speculation over the timeline for Fed rate increases and bolstering the value of the greenback.

Pro-democracy protesters who clashed with police in large swathes of central Hong Kong yesterday are dispersing, with calm restored in some areas as people returned to work. Still, thousands of protesters remained near the government’s main offices in the Admiralty district, blocking a main road into the central business area.

Profits at industrial companies in China declined last month for the first time in two years, a report over the weekend showed. Gauges of manufacturing activity in Asia’s biggest economy are due this week.