Risk assets hit as U.S., China data stirs recovery worry

By Chikako Mogi

TOKYO (Reuters) - Commodities led a sharp, broad decline in risk assets on Monday as weaker-than-expected Chinese data added to concerns stoked by U.S. numbers about the global economic outlook, prompting investors to book some gains from recent market rallies.

European markets were seen marking time, with financial spreadbetters predicting London's FTSE 100, Paris's CAC-40 and Frankfurt's DAX to open almost flat. But U.S. stock futures were down 0.4 percent to point to a tepid opening on Wall Street.

A negative reading of U.S. consumer sentiment and soft retail sales, plus rekindled worries in the euro zone late last week, had raised investor sensitivity to the early Monday announcement of growth data by China, the world's second-largest economy.

China's recovery unexpectedly stumbled in the first three months of 2013, as it reported the annual economic growth rate eased to 7.7 percent from 7.9 percent in the final quarter of last year. Economists had forecast 8 percent growth. Another data showed industrial output in March grew 8.9 percent from a year earlier, undershooting expectations for a 10 percent rise.

"U.S. data was just a start, and it shows that the global recovery is not quite as good as everyone thinks it is. And today, it's been backed up by China data," said Stan Shamu, market strategist at IG Markets in Sydney.

"It's just a broad risk sell-off as investors grow a little bit sceptical about the recovery that had driven markets much higher over the past several months. A lot of people just use any fragile economic data as an excuse to get out of it and lock in some gains," he said.

The sluggish data should underscore the need to keep global monetary stimulus in place, helping to support markets eventually, he added.

The MSCI's broadest index of Asia-Pacific shares outside Japan fell 0.8 percent, led by a 2.5 percent slide in its materials sector.

Spot gold fell as far as $1,427.14 an ounce to its lowest since April 2011, and was last down 2.1 percent at $1,448.16. Spot silver fell to its lowest since November 2010 of $24.32 an ounce and was last at $24.63, down 4.7 percent on the day. Bullion futures fell on fears about central bank sales and holdings on global exchange-traded funds sank to their lowest in more than a year.

"As the Fed becomes less reflationary and ECB (European Central Bank) not willing to end its deflationary policy, the balance towards inflation is shifting dramatically. And people recognise that an environment where you have no inflation is a powerful driver to get out of the metal," said Dominic Schnider, analyst at UBS Wealth Management.

U.S. crude futures plunged 2.7 percent to $88.85 a barrel and Brent slipped 2 percent to $101.07.

Resources-reliant Australian shares were down 1.5 percent earlier on Monday, then pared the loss to be off 0.9 percent, while the risk-sensitive Australian dollar eased 0.6 percent to $1.0435.

Hong Kong shares shed 1.2 percent and Shanghai shares fell 1 percent.

"The bad market reaction today is a result of raised expectations after last week's credit growth figures. This China GDP miss probably points to ineffectual credit growth because money is being used by companies to pay off short-term loans and interest," said Hong Hao, chief strategist at Bank of Communication International Securities in Hong Kong.

The Nikkei stock average slipped 1.0 percent, moving away from its highest level since July 2008, hit on Friday.

YEN STILL SEEN WEAKENING

The weak U.S. data weighed on the dollar, sending it as low as 97.55 yen. The yen's firmness against the dollar also pushed the euro down to a low of 127.56 yen.

Last week, the dollar touched a four-year high of 99.95 yen and the euro climbed as far as 131.10 yen, its highest since January 2010.

Daisuke Karakama, market economist at Mizuho Corporate Bank, said the dollar's drop against the yen appeared contained, despite the sluggish U.S. economic reports and the Obama administration putting Japan on notice in its semi-annual report on currency practices of major trade partners, indicating underlying weakness of the yen.

The U.S. said it was watching Japan's economic policies to ensure they were not aimed at devaluing the yen to gain a competitive advantage.

"As long as the yen's weakness comes as a result of Japanese government's economic measures to beat deflation, there is little the U.S. can say, because Japan is not intervening in currency markets to weaken its currency like some other countries might do," Karakama said.

The Bank of Japan's unprecedented reflationary plan spurred a sharp yen fall and boosted Japanese stocks, but Japanese government bonds have greeted it with exceptionally high volatility, and it's possible that once low-risk, low-return JGBs will turn into high-risk, low-return assets.

Data by fund-tracking firm EPFR Global for the week ending April 10 mirrored expectations for Japan's economic growth and Japanese investors' stronger appetite for overseas assets, as well as concerns from other exporting countries that a weaker yen will undermine their competitiveness.

Europe bond funds posted their biggest weekly inflow since early December, real estate sector funds took in fresh money for the 13th time in the 15 weeks year-to-date, while Asia ex-Japan equity funds recorded outflows for the second time in the past three weeks, EPFR said.

(Additional reporting by Lewa Pardomuan and Manolo Serapio Jr in Singapore and Clement Tan in Hong Kong; Editing by Richard Borsuk)

Source: http://news.yahoo.com/asian-shares-fall-weak-u-sales-await-china-002723890--finance.html

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