Global shares drop as China optimism fades

LONDON, Sept 5 (Reuters): Global equities fell on Tuesday as weak service sector data rekindled worries over China's sputtering post-pandemic economy, while Australia's central bank kept interest rates unchanged, pushing the Australian dollar lower.
European equity indexes opened in the red, with the pan-European benchmark STOXX 600 dropping 0.8 per cent and Germany's DAX, France's CAC 40 and Britain's FTSE 100 all nursing losses of between 0.6 per cent-1.2 per cent.
MSCI's broadest index of Asia-Pacific shares outside Japan was 1.1 per cent lower, moving away from a three-week high it touched on Monday.
That pushed MSCI's gauge of stocks across the globe down 0.3 per cent.
A recent rally in China shares, spurred by a spate of government measures to boost the faltering economy, is quickly losing steam. The blue-chip CSI 300 Index fell 0.7 per cent, while Hong Kong's Hang Seng Index slid 2.1 per cent, after those markets clocked their best day in over a month on Monday.
The optimism quickly dwindled after a private-sector survey showed on Tuesday that China's services activity expanded at the slowest pace in eight months in August as weak demand continued to dog the world's second-largest economy.
"The miss in China's Caixin services PMI has offset some of the sentiment shift we got yesterday," said Charu Chanana, market strategist at Saxo in Singapore.
Still, investors are hoping that Beijing's drip feed of policy stimulus will be enough to stabilise the Chinese economy.
"It feels like China has been tinkering around the edges and they probably need to do something more substantial," said Dan Boardman-Weston, CEO and CIO at BRI Wealth Management.
"They clearly want to sort out the property sector and make sure moral hazard doesn't encroach into the system, but I have been surprised by how seemingly weak the policy easing has been thus far."
In a rare bit of good news for the crisis-hit Chinese property sector, a person close to Country Garden (2007.HK) told Reuters the company has made interest payments on two US dollar bonds just as a grace period was due to end on Tuesday.
The Australian dollar shed 1.4 per cent to $0.6374, its biggest daily drop in a month, after the country's central bank held rates at 4.10 per cent and said recent data were consistent with inflation returning to the 2 per cent to 3 per cent target range in late 2025.
The RBA, chaired by outgoing Governor Philip Lowe, reiterated that some further tightening may still be needed to curb inflation. Lowe will hand over to his deputy Michele Bullock on Sept. 18.
"The key final paragraph was essentially unchanged, with a hawkish bias intact, but clearly no desire to act upon this bias unless forced by the data to do so," RBC capital markets chief economist Su-Lin Ong said in a note.
US markets were closed on Monday for a holiday, leading to light trading volumes. While the economic calendar in the region is bare, several Federal Reserve officials are due to speak during the week.
Data on Friday showed US job growth picked up in August, but the unemployment rate jumped to 3.8 per cent, while wage gains moderated. The slight cracks in the labour market bolstered expectations that the Fed is likely done hiking rates.
Markets are pricing in a 93 per cent chance of the Fed keeping rates unchanged later this month, CME's FedWatch tool showed, and around a 60 per cent chance of no more hikes this year.
Markets are also now leaning against a hike at the European Central Bank's September meeting after a run of soft data, the latest evidence being a faster decline in euro zone business activity than initially thought last month.
The euro dropped 0.4 per cent to $1.0750, its lowest level since June, while the Japanese yen weakened 0.3 per cent to 146.8555 per dollar, still at the levels that led to intervention from Japanese authorities last year
This pushed the dollar index , which measures the US currency against six rivals, higher by 0.4 per cent.
In commodities, US crude fell 0.2 per cent to $85.40 per barrel and Brent was at $88.38, down 0.7 per cent on the day, although both remain in close proximity to year-to-date highs.