Asian stocks fell on Tuesday, a day after hitting a 17-month high, on investor jitters about tighter monetary policy in China, while the dollar rose after a Chinese sovereign fund official said the currency has bottomed.
The MSCI index of Asia Pacific stocks traded outside Japan shed 0.6 percent, after China’s central bank stepped up its efforts to mop up money from the financial system. The Thomson Reuters index of Asian shares was down 0.9 percent.
The People’s Bank of China on Tuesday raised the auction yield on one-year bills by a bigger-than-expected 8.29 basis points and drained a record 200 billion yuan ($29 billion) from the market, signaling a bias to tighten monetary conditions.
“The rise in the auction yield today was much more than an average market forecast of a four-basis-point rise, meaning the central bank has stepped up its draining of liquidity even more strongly than the market had expected,” said Dong Dezhi, senior money market analyst at Bank of China in Shanghai.
Last week, the bank had surprised markets by raising the interest rate on three-month bills for the first time since August, raising fears of a tightening cycle to head off economic overheating.
A HASTY ADVANCE?
Analysts expect the central bank to raise rates and let the yuan, pegged to the dollar, appreciate gradually later this year.
Investors are increasingly focused on when central banks will unwind emergency stimulus launched during the financial crisis.
“I think markets may be getting a little ahead of themselves. We saw this back in 2009 with the Fed and look how that has panned out,” said Selena Ling, head of treasury research and strategy at OCBC Bank in Singapore.
The benchmark Shanghai stock index fell 0.7 percent while Hong Kong’s index lost almost 0.8 percent.
Shares in Aluminum Corp of China (Chalco), fell as much as 4.7 percent Kong on disappointing results from U.S. aluminum producer Alcoa.
Japan’s Nikkei bucked the trend to hit a 15-month high, lifted by resources stocks such as Sumitomo Metal Mining on higher gold prices, though tech stocks fell pressured by a stronger yen.
The dollar rose against the yen and the euro after a China sovereign fund official said the dollar has hit bottom and has limited room to fall further.
But the dollar gave up gains to as high as 92.43 yen after the official said the comments were his personal views.
Oil fell 63 cents to $81.89 a barrel, while gold hovered near 1,150 per ounce, a day after hitting a five-week high at $1,157.65 as data showed a sharp rise in China’s commodities imports.