SINGAPORE, (Reuters) - Asian stocks fell on Wednesday, with Japan’s Nikkei average tumbling over 2 percent, as investors fretted that China may be embarking on a policy tightening cycle after it surprised with its first interest rate rise since 2007.
The dollar stabilised, holding most of its gains made the previous day on the China news, with analysts saying further gains in the U.S. currency may be limited given expectations the Federal Reserve will ease policy again as early as next month.
Commodity prices also steadied after falling sharply on Tuesday.
The MSCI index of Asia Pacific stocks outside Japan down
0.40 percent at 0325 GMT, after trimming some of its losses suffered earlier in the day.
“It is not clear whether the central bank will start on a process of additional rate increases under the pressure of asset price bubbles and hot money inflows, but this signal shows that the government is clearly concerned about escalating inflation and rising real estate prices,” said Guo Yanling, analyst at Shanghai Securities.
Japan’s Nikkei average slid 2.2 percent with investors scrambling to take profits on China’s unexpected tightening and after worries about some U.S. banks pushed Wall Street lower.
It fell to an intraday low of 9,316.97 -- the lowest since Sept. 15, with resource-related shares and exporters taking a hit.
“China’s rate hike and the sharp fall on Wall Street were key factors that put a lot of downward pressure on the Nikkei.
It could fall to around 9,200 in the near term,” said Nagayuki Yamagishi, a strategist at Mitsubishi UFJ Morgan Stanley Securities.
The People’s Bank of China, the central bank, said it would
lift its benchmark one-year lending and deposit rate, effective on Wednesday, in a move some analysts said may suggest Beijing and Washington are working together to ease global currency tensions.
Hong Kong’s Hang Seng Index was down 1 percent, with property firms taking a severe hit. Property stocks fell 1.7 percent after opening 2.4 percent lower while the Shanghai property sub-index was down 3.5 percent.
China Vanke, the country’s largest listed developer, was down 4.5 percent.
But in a sign that the initial reaction to the rate rise may have been overdone, Shanghai’s key stock index clawed back into positive territory after opening down 1.8 percent.
While a pull-back in riskier assets was due anyway after a recent heady run-up, China’s rate hike also rattled investors as it sparked concerns the world’s growth engine may be embarking on a policy tightening cycle. At a time when growth in other major economies is tepid, many investors look to China to hold up global growth. So some are worried China may excessively slow its economy if it tightens too far.
Crude oil prices held steady after falling more than 4 percent on the rate rise, while spot gold also stabilised at $1,335.50 after sharp falls.
The yuan fell in early trade to 6.6588 per dollar compared with Tuesday’s close of 6.6447, after the People’s Bank of China (PBOC) set the currency’s mid-point sharply lower in what was seen as an effort to prevent the interest rate rise from attracting more inflows of speculative capital.