Hong Kong: Asian shares fell for a second straight session as some of the confidence that fuelled a rally in stocks to seven-month highs was undermined by reports highlighting economic weakness.
Sentiment was hit by data showing China’s exports in April fell more steeply than expected from a year earlier, casting fresh doubt on the prospects for recovery in the world’s third largest economy. Imports also dropped.
Hopes of a recovery in China on the back of big government spending had fuelled a surge in equity markets from lows in early March, as investors bet on a turnaround in the global economy.
“Exports are still falling, and the future of the world economy remains uncertain. It’s really hard to be optimistic about China’s trade prospects,” said Qi Jingmei, an economist with the State Information Centre in Beijing.
The MSCI index of Asia-Pacific stocks outside Japan fell as much as 1.9% before trimming losses to about 0.7%. This is the second session of losses for an index that just on Monday had hit its highest intraday level since early October. Still, it is up about 50% since early March.
Japan’s Nikkei average fell 1.6%, retreating from its highest close in six months on Monday.
The declines come as debate about the outlook for the global economy is confounded by the mixed nature of recent reports.
Optimists pointed to a survey from the Organisation for Economic Co-Operation and Development on Monday that noted the pace of the decline in the world’s major industrialised and emerging economies was easing.
Leading central bankers, including ECB President Jean-Claude Trichet, on Monday also suggested the global economy was turning the corner.
The South Korean central bank forecast mildly positive quarterly growth in coming months for an economy that just skirted a recession in the first quarter, but said risks remained so it would keep an accommodative monetary policy. It left rates at a record low of 2% as widely expected.
However, other reports have not been too rosy. Industrial production in France and Italy dropped more sharply than expected in March, data showed on Monday, in a bad omen for the eurozone economy.
India also reported on Tuesday that industrial output fell in March more than expected from a year earlier.
In Asia, Shanghai’s main index rose 1.5% on hopes of government aid to the economy. Hong Kong shares rose 0.4%, with HSBC advancing 1.8% after the lender on Monday said first-quarter profits were ‘well ahead’ of last year.
Many other financial shares, including Mitsubishi UFJ Financial Group, dropped following a rally that had tracked gains in US banking shares.
Indian shares soared more than 4% on speculation the alliance led by Bharatiya Janata Party, seen as market friendly, was gaining momentum in national elections. Voting ends this Wednesday, but results in the month-long election are only due Saturday.
Taiwan’s main index slumped 3.2%, its worst decline in three weeks, on profit-taking.
Australian shares lost 1.2% while South Korea shed 0.8%.
Where to next?
The dollar’s broad value against a basket of currencies fell to a four-month low in European trade and the euro rose to a seven-week high as optimism the worst of the economic crisis is over boosted oil and share prices in morning European trade.
British data showing a slowdown in the pace of manufacturing decline was the latest economic indicator to bolster the bullish view of the global economy, intensifying the dollar’s weak technical backdrop.
The dollar index fell to a four-month low of 82.271, down 0.7% on the day, while the euro rose around 0.7% to $1.3677, a level not seen since 23 March.
Oil prices rose more than a dollar to a six-month high above $59 a barrel, boosted partly by a weaker dollar.