Asian stocks cut losses as China shock wears off
Thursday, 21 October 2010
SINGAPORE, Oct 20 (Reuters): Asian stocks pared early losses Wednesday as markets recovered from an initial shock to China's first rate rise in nearly three years that had investors fretting it may be embarking on a policy tightening cycle.
European shares are expected to open lower, with futures for the STOXX Europe 50, for Germany's DAX and for France's CAC down 0.2-0.4 per cent.
The dollar dipped against a basket of currencies, trimming gains it made after the surprise rate hike by China spurred the market to lower risk exposure, while commodity prices steadied after falling sharply Tuesday.
"China's tightening came as a shock, but the country's intention doesn't seem to be a cooling of its economy, Instead it has moved to prevent bubbles from bursting. It's rather natural, if you look at it in the longer term," said Tomomi Yamashita, senior fund manager at Shinkin Asset Management in Tokyo.
"Financial markets are still supported by expectations of further easing by the United States, with ample liquidity helping assets such as bonds and commodities. The focus from now on is whether these money flows will change course."
The MSCI index of Asia Pacific stocks outside Japan was down 0.2 per cent at 0640 GMT, after trimming some of its losses suffered earlier in the day.
Japan's Nikkei average pared earlier losses but still closed down 1.65 per cent to book its lowest close in two weeks after investors rushed to take profits on China's unexpected tightening and after worries about some US banks pushed Wall Street lower.
Shanghai stocks were down 0.2 per cent after a volatile session while Hong Kong came off its lows in the morning session as investors took China's first interest rate hike since 2007 in stride.
Property stocks led the drop in China, with those in Hong Kong down 1.5 per cent and the Shanghai property sub-index falling more than 4.8 per cent.
The dollar index dipped 0.4 per cent to after climbing more than 1.6 per cent the previous day while the commodity-sensitive Australian dollar rebounded 0.8 per cent after sliding more than 2 per cent Tuesday.
Some analysts said the market's reaction the previous day was overblown, and with the Federal Reserve set to ease monetary policy further as early as next month, any dollar rebound would be short-lived.
The People's Bank of China, the central bank, said it would lift its benchmark one-year lending and deposit rate, effective Wednesday, in a move some analysts said may suggest Beijing and Washington are working together to ease global currency tensions.
Crude oil prices rebounded after falling more than 4 per cent on the rate rise, while spot gold also stabilised at $1,340.00 after sharp falls.
The yuan fell by more than 100 pips in morning trade to 6.6558 per dollar, after the PBOC set the currency's mid-point weaker in what was seen as an effort to prevent the interest rate rise from attracting more inflows of speculative capital.
European shares are expected to open lower, with futures for the STOXX Europe 50, for Germany's DAX and for France's CAC down 0.2-0.4 per cent.
The dollar dipped against a basket of currencies, trimming gains it made after the surprise rate hike by China spurred the market to lower risk exposure, while commodity prices steadied after falling sharply Tuesday.
"China's tightening came as a shock, but the country's intention doesn't seem to be a cooling of its economy, Instead it has moved to prevent bubbles from bursting. It's rather natural, if you look at it in the longer term," said Tomomi Yamashita, senior fund manager at Shinkin Asset Management in Tokyo.
"Financial markets are still supported by expectations of further easing by the United States, with ample liquidity helping assets such as bonds and commodities. The focus from now on is whether these money flows will change course."
The MSCI index of Asia Pacific stocks outside Japan was down 0.2 per cent at 0640 GMT, after trimming some of its losses suffered earlier in the day.
Japan's Nikkei average pared earlier losses but still closed down 1.65 per cent to book its lowest close in two weeks after investors rushed to take profits on China's unexpected tightening and after worries about some US banks pushed Wall Street lower.
Shanghai stocks were down 0.2 per cent after a volatile session while Hong Kong came off its lows in the morning session as investors took China's first interest rate hike since 2007 in stride.
Property stocks led the drop in China, with those in Hong Kong down 1.5 per cent and the Shanghai property sub-index falling more than 4.8 per cent.
The dollar index dipped 0.4 per cent to after climbing more than 1.6 per cent the previous day while the commodity-sensitive Australian dollar rebounded 0.8 per cent after sliding more than 2 per cent Tuesday.
Some analysts said the market's reaction the previous day was overblown, and with the Federal Reserve set to ease monetary policy further as early as next month, any dollar rebound would be short-lived.
The People's Bank of China, the central bank, said it would lift its benchmark one-year lending and deposit rate, effective Wednesday, in a move some analysts said may suggest Beijing and Washington are working together to ease global currency tensions.
Crude oil prices rebounded after falling more than 4 per cent on the rate rise, while spot gold also stabilised at $1,340.00 after sharp falls.
The yuan fell by more than 100 pips in morning trade to 6.6558 per dollar, after the PBOC set the currency's mid-point weaker in what was seen as an effort to prevent the interest rate rise from attracting more inflows of speculative capital.