Asian markets traded broadly lower, led down by Shanghai and Hong Kong, where banking and real estate shares fronted declines as investors fretted about the impact of the latest round of anti-inflationary measures announced over the weekend.
After enjoying an extended holiday the Shanghai`s Composite Index tanked by 7.8% to 3,072.33 in the first day of trading since the People`s Bank of China announced it would lift the ratio of reserves banks must set aside as deposits by 1 percentage point. People Bank of China hiked banks` reserve requirement ratios for the fifth time this year, taking aim at inflation and at the flows of speculative funds pouring into the country.
The People`s Bank of China said over the weekend that it would require banks must put aside 17% of deposits as reserves, effective 15 June. A second hike to 17.5% will go into effect 25 June, for a total rise of 100 basis points above the current requirement of 16.5%.
The benchmark index for the Shenzhen stock market was down 8% at 928.20. Hong Kong`s Hang Seng Index slipped 4.1% at 23,411.40 and the Hang Seng China Enterprises Index gave up 5.4% to 12,783.96.
Japanese shares ended the morning session slightly lower, although consumer and automotives shares that were down in yesterday`s session managed to eke out modest gains. The Nikkei 225 Average closed 1.1% lower at 14,021.17. The Topix index was down by 1% at 1,383.20.
On the economic front, Japan`s core private-sector machinery orders rose for the first time in three months in April. According to the data released by the cabinet office the machinery orders by Japanese companies rose seasonally adjusted 5.5% to 1trillion yen ($9.4 billion) in April from March.
Australia`s S&P/ASX 200 was down 2.8% to 5,437.50. However on the economic release side the Australian business sentiment improved in May from April, though only slightly due to lingering concerns about slowing domestic demand in the wake of higher interest rates and fuel costs.
National Australia Bank said its business confidence index, which measures expectations in the three-month period ahead, rose 4.0 points to a still negative reading of minus 4.0 points. Its business conditions index, which measures current conditions, was unchanged at plus 7.0 index points.
The business conditions index was steady for the third straight month at the lowest reading since December 2002, and well off a peak of 20 points in October last year, NAB said.
In other regional action, South Korea`s Kospi fell 1.9% to 1,774.38. Taiwan`s Weighted Price Index slumped by 2.5% to 8,370. New Zealand`s NZX-50 added 0.3% to 3,505.90 while Malaysia`s KLSE Composite added 0.1% with a closing of 1,232.07. Singapore`s Straits Times Index was down 1.5% at 3,038.22.
In the afternoon trading India`s Sensitive Index, or Sensex, was down by 1.9% to 14,784.55 and the broader S&P/CNX Nifty fell 2% to 4,412.20.
In currencies the U.S. dollar was quoted at 106.69 yen, compared to 106.29 yen in late New York Monday.
Crude oil for July delivery climbed as much as 60 cents to $134.95 a barrel in electronic trading in mid-morning Tokyo hours. The front-month contract closed with a 3% decline, giving up $4.19 cents to $134.35 a barrel on the New York Mercantile Exchange Monday.
Shares in European markets fell sharply, with financials and automakers under particular pressure, while comments from U.S. Federal Reserve Chairman Ben Bernanke fading up inflation risks kept broader market sentiment in check.
In the opening trade the U.K. FTSE 100 index lost 0.7% to 5,836.00, the German DAX 30 index fell 1.2% to 6,730.92 and the French CAC-40 index declined 1.1% to 4,746.30.
On the economic front, the French industrial production rose 1.4% on the month in April, backed by an increase in the production of cars and equipment goods. The March data were revised down to a 1.0% decline from the 0.8% fall published last month.
Meanwhile, Germany`s wholesale prices in May rose 1.4 percent from April and increased 8.1 percent from a year earlier. Germany`s wholesale price index stood at 124.6 in May, compared with 122.9 in April and 115.3 in May 2007. In April, wholesale prices had increased 6.9 percent year-on-year and in March, the change was at 7.1 percent.
In U.K. the manufacturing production has increased slightly in April supported by a considerable increase in transport equipment. The output of manufacturing industries has increased 0.1% in the UK between March and April, as transport equipment output rose 2.8%. On the year the manufacturing production posted the same increase; 0.1%.
Another data release showed industrial production gaining 0.2% on the month as well as on the year, supported by a 7.7% increase in gas, electricity, and water output, plus the afore mentioned increase on car and aircraft production
Looking ahead the day is scheduled to release merchandise trade balance for Canada, which will be followed by Bank of Canada`s interest rate decision. In the evening we have ABC weekly consumer confidence. Late night we have a series of data from Japanese statistical houses. The series will start with current account data followed by Domestic Corporate Goods Price Index. However the key event will the Gross domestic product of Japan.
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