Asian Markets Fall

HONG KONG—Asian markets fell Thursday as concerns about the ability of European countries to borrow added to lingering concerns about Greek elections this weekend.

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Many investors "are waiting to see the key Greek elections Sunday and any potential policy measures to be taken next week," said Kazuhiro Takahashi, general manager of investment strategy in Daiwa Securities.

Fears about the health of Spain's financial system were prominent, after Moody's Investors Service downgraded Spain by three notches-to Baa3, just one level above junk. The ratings agency said the €100 billion ($126 billion) Spanish bank bailout will worsen the government's debt position and that the European country's current reliance on external funding is unsustainable.

Concerns surrounded Italy's debt after it sold one-year treasuries at a yield of 3.97%, about double the borrowing costs from a month before. Investors were looking ahead to see the yields on another Italian auction, where it will sell longer-term debt, later in the global day.

There remained concerns about Greece, where depositors are withdrawing cash ahead of the election this weekend.

In the U.S., retail sales dropped for the second month in a row, the first consecutive monthly decline in nearly two years. The data for May fell less than expected, but April's data were revised down into negative territory.

Japan's Nikkei Average dropped by 0.2%, Australia's S&P ASX 200 lost 0.5%, while South Korea's Kospi was flat. Hong Kong's Hang Seng Index fell 0.5%, the China Shanghai Composite was 0.3% lower and Singapore's Straits Times Index lost 0.3%.

The euro was up slightly, at $1.2570, after gaining 0.4% against the dollar on Wednesday; while the dollar was little moved, at 79.42.

Although the Hang Seng Index was lower on Thursday, investors were already looking ahead to a visit by senior officials from Beijing in July, who are expected to offer something for the local economy.

"July 1 marks the fifteenth anniversary of Hong Kong's handover, [and] there are expectations that the central government will roll out measures to support the Hong Kong economy," said Ben Kwong, chief operating officer of KGI Asia.

There are expectations that visiting leaders could allow mainland professional investors to buy shares in Hong Kong, via a special qualified domestic institutional investor program, which is pushing up Hong Kong subsidiaries of mainland brokers: Haitong International gained 0.6% and Guotai Junan climbed 4.4%.

Also in Hong Kong, further upheaval at Esprit punished the fashion retailer's share price, down 10.2%, after the chairman resigned "due to personal reasons." The news came out just after the resignation of the chief executive, who also cited personal reasons, pushing the company's share price down 22% on Wednesday before the shares were suspended in the afternoon.

Shares in major flat screen television manufacturers are up, after a Nikkei report that the prices of flat-panel TV sets at large retailers are heading up. May's average sales prices were 15% above March's record low, taking the average back to October levels before fierce year-end competition kicked in. Sharp and Panasonic both gained 2.2%.

Write to Daniel Inman at daniel.inman@wsj.com