TOKYO, Nov 17 (Reuters): Japanese stocks marked their biggest daily drop since August on Monday, helping the yen rebound from a fresh seven-year low against the dollar touched after news Japan unexpectedly fell into recession in the third quarter.
"European equities are set to open lower following Japan's dip into recession," Capital Spreads dealer Jonathan Sudaria said in a note.
Capital Spreads predicted Britain's FTSE 100 would fell 33 points, or 0.4 per cent; France's CAC 40 would open down 20 points, or 0.4 per cent, and Germany's DAX would open 66 points lower, or 0.7 per cent.
Meanwhile, Shanghai shares edged up 0.2 per cent. Hong Kong opened around 1 per cent higher but quickly erased gains and was down 0.7 per cent on suspected profit-taking by traders who had positioned for the launch of the Stock Connect scheme that will let Hong Kong and Shanghai investors buy and sell shares on each other's bourses.
A daily investment quota for the Shanghai leg of a stock market connect scheme was hit in early afternoon trading as investors piled into the relatively undervalued mainland shares.
"The market had already responded to the stock link," Andy Wong, senior investment analyst at Harris Fraser (International) Ltd in Hong Kong said, referring to the Hong Kong market. "Short-term investors are taking profits from the market."
Much of the cash flow is expected to be northbound at first, as foreign investors on the Hong Kong Exchange target mainland shares under a daily quota of 13 billion yuan.
MSCI's broadest index of Asia-Pacific shares outside Japan was down 0.3 per cent, as the disappointing Japanese growth data sent the Nikkei stock average tumbling 3 per cent.
Japanese GDP contracted an annualised 1.6 per cent in the July-September quarter, compared with a 2.1-per cent increase forecast by economists in a Reuters poll. That followed a revised 7.3 per cent contraction in the second quarter, which was the biggest slump since the March 2011 earthquake and tsunami.
The shockingly downbeat report reinforced expectations Prime Minister Shinzo Abe will delay a sales tax hike, set for October next year, after a hike in the tax in April took a heavy toll on consumption.
The dollar initially rallied as high as 117.06 yen, but gave up those gains in extremely volatile trade as the Nikkei extended losses. Many market participants, particularly foreign investors, sell the yen to hedge their equities positions, so the Japanese currency tends to gain whenever stocks drop. The dollar was last down about 0.4 per cent at 115.74.
