Asian stocks continue to back off

Chinese rake hike fears take centre stage, risk appetite struggles to hold sway

Asian stock markets were mostly bearish today, with rate hike fears in China keeping the sentiments cautious while risk appetite seemingly unable to make its presence felt. The US dollar added to the its overnight gains and traced to a two week high against the Euro as the uncertainty in global markets helped the buck gain as a safe haven measure. US stocks dropped yesterday, witnessing a second straight day of declines as investors retreated from a recent climb that had lifted equities to levels not seen since the financial system went into meltdown in late 2008. By the end of a second day of declines that halted a six-session winning streak, the DOW was down 60.09 points, or 0.5%, at 11,346.75.



On the economic front, the wholesale inventories in the US went up by much more than expected in the month of September, the Commerce Department reported yesterday. The wholesale inventories increased by 1.5% in September following a revised 1.2% increase in August. A notable increase in inventories of non-durable goods contributed to the stronger than expected growth, with inventories of non-durable goods surging up by 2.8% in September due largely to a 14.8% jump in inventories of farm products.

The Japanese stocks edged up today though, riding on the back of strong gains in exports related issues as the yen's decline against the U.S. dollar supported the sentiments. The automobile and metal producers gained impressively as the benchmark Nikkei 225 index rallied to a fresh four-month highs and closed with a gain of 136.03 points or 1.40% at 9830.52 points.

Australian stocks eased today, giving up further as the drop from seven month lows extended. Banks and financials continued to fall with the losses exacerbated after a mixed start. Gold producers also eased as the yellow metal fell under the watershed $1400 per ounce mark on profit selling. The All Ordinaries Index fell 41.3 points or 0.9% to close at 4779.5 while the S&P/ASX 200 Index dropped by 40.9 points or 0.86% to end the day at 4699.8.

In China, the mood remained cautious as fears of yet another interest hike gathered storm. Yesterday, China's central bank raised the yield on the one-year bills it sold in its regular open market operation by more than five basis points, amid expectations that inflation continued to grow in October. This move reflected that the country is on course to crack down further on hot money inflows into its economy. The PBOC also raised interest rates for the first time in nearly three years last month to temper inflationary pressures, lifting the one-year yuan-lending rate to 5.56% from 5.31%, and the one-year Yuan deposit rate to 2.5% from 2.25%.

Clubbed with this, the other factor that anchored the markets lower were the media reports stating that the People's Bank of China plans to raise the reserve requirement ratio at selected banks, including some of the country's largest state-owned lenders, by 0.50%.

The State Administration of Foreign Exchange has also announced to tighten management of banks' foreign-debt quotas and introduce new rules on their currency provisioning, the regulator said in a statement yesterday. The government will also regulate Chinese special-purpose vehicles overseas and tighten controls on equity investments by foreign companies in China, it said.

The benchmark Shanghai Composite Index lost 19.6 points or 0.60% to close at 3,115.4 today.

In Mumbai, the key benchmark indices edged lower in a choppy trading session with indices closing near the day's lows as weak European stocks weighed on investor sentiment. The indices moved in a narrow band near the flat line. Capital goods, FMCG and metal stocks fell. But, consumer durables and IT stocks rose. Index heavyweight Reliance Industries edged lower in volatile trade. Tata Motors jumped to hit record highs after reporting stellar Q2 result. Hindalco Industries slumped after announcing lower than forecasted Q2 result. The market breadth was strong as buying was witnessed in mid cap and small cap stocks. As per provisional figures, the BSE 30-share Sensex was down 68.12 points or 0.33%, to 20,864.36. The S&P CNX Nifty was down 26.10 points or 0.41% to 6,275.45 as per provisional figures

In other markets, the Hang Seng index in Hong Kong lost 0.85%, the Straits Times index in Singapore pared 0.74% while the TSEC index in Taiwan added nominal gains of 0.06%. Crude oil extended its fall from the highest level in two years as the dollar strengthened against the euro, curbing the appeal of commodities as an alternate investment, and equities tumbled. Oil dropped for the first time in seven days yesterday as the euro declined amid concern some governments in Europe may struggle to pay their debt. Crude for December delivery quotes at $86.62, down 10 cents from the previous close.