Hong Kong, 17 September Asian stocks eased on Monday, taking a breather after four straight weeks of gains, with expectations of a US interest rate cut this week offset by renewed worries about a global credit squeeze.
A public holiday in Japan kept the yen subdued, while spot gold regained its footing following the choppy session on 13 September that saw the precious metal fall from a 16-month high of $717. Gold was trading at $710.50 an ounce.
News that Britain’s financial authorities had stepped in to rescue mortgage lender Northern Rock, which fell victim to the sharp rise in borrowing costs between banks, renewed worries about the credit market.
“The development is clearly unsettling for investors and highlights that the subprime credit market crisis will take some time to resolve,” said Guy Hutchings, chief executive at MFS Investment Management in Australia.
But hopes are high that the Federal Reserve will cut its benchmark Fed funds rate by at least 25 basis points at its policy setting meeting on Tuesday to help take the heat off those credit concerns.
By 0250 GMT, MSCI’s measure of Asia Pacific stocks excluding Japan had slipped 0.5%, retreating slightly after four weeks of gains.
The index has risen about 21% from a five-month trough on 17 August and was just 3.8% below a 24 July life high.
Investors sold some bank shares on renewed credit worries, knocking Australia’s Commonwealth Bank down 0.7% and National Australia Bank down 1.4%.
South Korean exporters such as steel maker POSCO were also under pressure after China, their top export market, raised interest rates on Friday for the fifth time this year to rein in inflation.
But investors snapped up Oil Search on takeover talk, sending the stock up 10.4%, while China Merchants Holdings climbed 3 percent after the Chinese port operator said it would expand its port operations.
Major markets in the region were mostly softer, but China’s Shanghai Composite Index advanced 1.3% and was near a record high set on 6 September as investors shrugged off Friday’s 0.27 percentage-point hike to deposit and lending rates, announced after the market close.
“The latest rate hike was widely expected, so its impact was muted,” said analyst Cao Xuefeng at West China Securities. “But the index has already jumped this year, and the potential for it to rise sharply again in the short term is limited.”
Holiday subdues Yen
The dollar was little changed versus the Japanese currency at 115.30 yen while the euro bought nearly 160 yen not far from late New York levels on 13 September.
Against the dollar, the single currency fetched $1.3872, still within striking distance of a record high just above $1.39 set late last week.
Growing expectations of a US rate cut had pressured the dollar against most other major currencies.
“With key US economic data printing softer and with inflation having eased in the past few months, the case for lowering the fed funds rate would be building even in the absence of the recent strains in the financial system,” said Darren Gibbs, chief economist at Deutsche Bank.
“When these strains are factored in, the case for a 50 basis point cut appears quite persuasive.”
Also subdued, US crude edged down 51 cents to $78.59 a barrel, extending its pullback from a record high above $80 set on Friday, while Shanghai copper was steady and expected to remain so until after the Fed meeting.