Asian shares skid as China data disappoints

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By Lisa Twaronite

TOKYO (Reuters) – Asian shares languished on Monday, after the latest gauge of China’s factory sector activity raised concerns about the world’s second-largest economy.

MSCI’s broadest index of Asia-Pacific shares outside Japan was down about 0.1 percent, while Japan’s Nikkei stock average dropped 0.6 percent. The Shanghai Composite Index lost 1.2 percent.

The final HSBC/Markit Purchasing Managers’ Index (PMI) for January came in at 49.7 on a seasonally adjusted basis, just below the 50.0 level that separates growth from contraction. The figure released on Monday was slightly lower than a preliminary “flash” reading of 49.8.

The official PMI released on Sunday fell to 49.8 in January, a low last seen in September 2012 and below the 50-point level. The unexpected contraction was the first in nearly 2-1/2 years, and firms see more gloom ahead.

The latest batch of downbeat data added to the debate over how and whether Beijing will accelerate its policy easing, with most bank economists calling for a combination of rate cuts and increased liquidity.

“The November policy rate cut was preceded by complaints by Premier Li about the lack of credit flow to businesses and we will be looking for similar hints to gauge the likelihood of a bazooka stimulus,” said Tim Condon at ING, adding that he didn’t consider the sub-50 official reading particularly surprising given seasonal factors and wider economic trends.

The Chinese figures came on the heels of the fourth-quarter U.S. gross domestic product report on Friday that showed growth slowed sharply as weak business spending and a wider trade deficit offset a surge in consumer spending.

Investors also remained wary of developments in Greece, where the country’s new leftist government began its drive to persuade a skeptical Europe to accept a new debt agreement while it starts to roll back on austerity measures imposed under its existing bailout agreement. It seeks to end the existing arrangement with the European Union, the European Central Bank and International Monetary Fund “troika” when its aid deadline expires on Feb. 28.

“The combination of softer U.S. data, the disappointing China PMI and the fact that Greece is now very much on a collision course with the rest of Europe over its budget should continue to weigh on risk sentiment in Asia,” Westpac Global Strategy Group said in a note to clients.

On Wall Street on Friday, major U.S. stock indexes posted losses for the week and month, driven in part by concern about weak overseas demand. The S&P 500 was down 3.1 percent for January, its biggest monthly slide in a year.

The risk-averse mood initially weighed on the dollar, which dropped to a two-week low of 116.64, as investors preferred the perennial safe-haven appeal of the Japanese currency. But the greenback clawed back early losses and was last up 0.2 percent at 117.79.

The euro also took back some lost ground after touching a one-week low of 130.11, and was last up 0.4 percent at 133.13 yen. Against the dollar, the euro edged up 0.2 percent to $1.1305.

Sagging U.S. Treasury yields also undermined the greenback’s appeal, as investors sought the safety of U.S. fixed-income assets. The benchmark 10-year yield was at 1.666 percent in Asian trading, down from its U.S. close of 1.680 percent on Friday, when it fell as low as 1.646 percent, a level not seen since May 2013.

Oil prices skidded after the weak economic data raised concern about demand, giving back some of Friday’s after a record weekly drop in U.S. oil drilling triggered a short-covering rally on the final trading day of the month.

Brent and U.S. crude both tumbled 2.5 percent to $51.66 and $47.03 a barrel respectively.

(Additional reporting by Pete Sweeney in Shanghai; Editing by Eric Meijer)

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