Asian stocks fall as concerns intensify over China manufacturing, US plan to taper stimulus

KUALA LUMPUR, Malaysia – Asian stocks endured moderate losses Friday, but European markets appeared set to stabilize even though investors remained edgy about a possible change of course by the U.S. Federal Reserve.

Markets have also been unnerved by signs of a worsening slowdown in China’s factory output this month and a big jump in the overnight lending rate — sparking worries that tighter lending could pinch economic growth even further in the world’s No. 2.

“If markets had had only that to worry about then maybe the current sell-off mightn’t have been so steep, unfortunately when you put concerns about China into the mix as well it makes for a rather potent mix for risk aversion,” said Michael Hewson at CMC Markets in an email commentary.

Britain’s FTSE 100 rose 0.4 per cent in early trading. Germany’s DAX rose 0.2 per cent to 7,945.11. France’s CAC-40 gained 0.6 per cent to 3,720.83. Wall Street looked set to recoup some big losses from the day before. Ahead of the opening bell, Dow Jones industrial futures rose 0.5 per cent to 14,769. S&P 500 futures rose 0.5 per cent to 1,592.40.

Japan’s Nikkei 225, the region’s biggest benchmark, bucked the losing trend in Asia, as the yen weakened against the dollar. That helps the country’s exporters by making their products more price competitive abroad. The Nikkei rose 1.7 per cent to close at 13,230.13. Honda Motor Corp. rose 2 per cent while Suzuki Motor Corp. advanced 3.8 per cent.

Elsewhere in Asia, markets fell. Hong Kong’s Hang Seng index dropped 0.6 per cent to 20,263.31, while South Korea’s KOSPI index shed 1.5 per cent to 1,822.83. Benchmarks in Singapore, Taiwan, the Philippines and Indonesia also fell.

For nearly five years, the Fed has been pursuing an aggressive monetary policy to shore up the U.S. economy, which was battered by the financial crisis in 2008. Now that the U.S. economy has shown signs of improvement, Fed Chairman Ben Bernanke says the central bank is considering when it should start normalizing its policy.

In the latest round of its monetary stimulus program — known as quantitative easing, or QE — the Fed has been buying $85 billion worth of financial assets each month to keep long-term interest rates low. Earlier this week, Bernanke said purchases will likely slow down this year and end next year.

“Asia has benefited from U.S. capital inflows, partly in relation to QE. It has been forcefed with steroids, and now that the steroids are going to be pulled back, what will happen is a period of transitional volatility that can continue through summer,” said Mitul Kotecha, analyst with Credit Agricole CIB.

The Dow shed 2.3 per cent on Thursday, its biggest loss since November 2011. The index has lost 560 points in the past two days, wiping out its gains from May and June. The Standard & Poor’s 500 lost 2.5 per cent.

Some investors said the sell-off in stocks may be overdone. The Fed is considering easing back on its stimulus because the economy is improving. The central bank has upgraded its outlook for unemployment and economic growth.

Benchmark oil for August delivery rose 51 cents to $95.65 per barrel in electronic trading on the New York Mercantile Exchange. The settlement contract for July fell $2.84 to close at $95.40 on the Nymex on Thursday.

In currencies, the euro rose to $1.3219 from $1.3197 late Thursday in New York. The dollar rose to 97.81 yen from 97.34 yen.