Asian shares fall on profit-taking, US outlook

Asian shares fall on profit-taking, US outlook

Hong Kong: Asian shares edged down Thursday as traders cashed in after a two-day regional rally while sentiment was also dampened by the Federal Reserve’s decision to cut its 2011 US growth forecast.

The US central bank on Wednesday said the world’s number one economy was recovering slower than expected and announced it would hold interest rates at super-low levels “for an extended period".

However, it also confirmed its second round of bond-buying, known as quantitative easing 2 (QE2), will end this month as the current problems in the economy were temporary and would not need more stimulus.

In early trade Hong Kong dipped 0.94%, Tokyo lost 0.37%, Seoul was 0.45% lower, Shanghai fell 0.57% and Sydney shed 0.50%.

The losses follow two days of gains in Asia that were helped by hopes for a solution to Greece’s debt crisis.

After a two-day meeting the Fed’s policy setting panel said on Wednesday that the “economic recovery is continuing at a moderate pace, though somewhat more slowly than the committee expected".

It blamed the slowdown in part on “factors that are likely to be temporary," such as higher food and energy prices, which were crimping consumer purchasing power, and supply chain disruptions related to Japan’s March earthquake and tsunami.

The committee slashed its growth estimate for the economy this year to a range between 2.7% and 2.9%, from its earlier forecast of 3.1-3.3%.

Fed chairman Ben Bernanke said the key reasons for maintaining the loose monetary policy were “the ongoing labour market slack" and “the subdued inflation outlook."

He said the bank had additional “untested" tools available to ease monetary policy further if conditions worsened but warned that “none of them are without risks or costs".

“The major concern for markets remains the depth and length of the current ‘soft patch´," Credit Agricole said in a note to clients, according to Dow Jones Newswires.

“The Fed believes it will be temporary and we concur but clearly the slide in equity markets over recent weeks suggests that there has been a divergence between stock market expectations and reality."

The confirmation that QE2 will end this month provided a lift to the dollar, which firmed to 80.55 yen in early Tokyo trade from 80.31 late Wednesday in New York.

The euro eased to $1.4310 from $1.4349 and was sitting at 115.34 yen, from 115.26.

On oil markets New York’s main contract, West Texas Intermediate (WTI) light, sweet crude for delivery in August, dipped $1.28 to $94.13 a barrel and Brent North Sea crude for August fell $1.05 to $113.16.

Gold opened in Hong Kong at $1,548.00-$1,549.00 an ounce, slightly up from Wednesday’s close of $1,546.00-$1,547.00.