Asian Shares Mostly Down; Inflation Data Buffet Sydney

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By Shri Navaratnam

(Adds information, quotes, updates/adds market levels)

SINGAPORE (MarketWatch) -- Asian stock markets were mostly lower Wednesday, with Tokyo's market giving up early gains, while Australian shares fell after the local currency was sold off on lower-than-expected inflation data.

Japan's Nikkei Stock Average edged down 0.2%, Australia's S&P/ASX 200 shed 0.8% and South Korea's Kospi Composite was down 0.7%. Hong Kong's Hang Seng Index dropped 1.5% and China's Shanghai Composite fell 0.3%. Dow Jones Industrial Average futures were 45 points lower in screen trade.

Australian shares lost ground after a sharp fall in the Australian dollar, spurred by weaker-than-expected inflation data for the third quarter shutting the door on a potential rate hike by the central bank next week.

Shares were also weighed after futures resumed trading after ASX's bond futures trading platform crashed, halting trades for just over 90 minutes and preventing traders from executing deals after the inflation data.

"We expect more profit taking at these levels," said MF Global Institutional Trader Nick Burmester. "QE2 is factored in to a degree." At its Nov. 3 meeting, the Federal Open Market Committee is widely expected to announce further quantitative easing measures to kick start a slowing U.S. economy.

Third-quarter inflation in Australia rose 0.7% from the previous quarter, compared with 0.6% in the second quarter and below economists' expectations of 0.8%. Many had previously expected a strong inflation print would prompt the Reserve Bank of Australia to hike interest rates next week after it surprised markets by pausing at its last meeting.

Resources plays led declines, with BHP Billiton down 1.0% and Rio Tinto falling 1.9% after ArcelorMittal retained a cautious outlook, citing higher material costs and muted demand. A pull back in gold prices this week drove Newcrest Mining down 2.9%.

ASX dropped 3.6%, extending Tuesday's 7.4% decline, on concerns the A$8.4 billion dollar takeover bid by the Singapore Exchange could be scuttled by regulatory and political hurdles in Australia.

On the upside, NAB shares rose 1.9% after it said Tuesday its full-year net profit rose an above-expected 63% from a year earlier, helped by a decline in charges for problem loans as the Australian economy picked up momentum.

The Tokyo market gave up early gains, weighed by losses in regional markets, with large-cap stocks bearing the brunt of the selling. Tokyo Electric Power lost 1.5%, weighed by a weaker yen. Banks lost ground as some companies sold their cross-shareholdings, with MUFG losing 2.4% and Mizuho Financial Group falling 2.5%.

But the market was supported by exporters' stocks rising after the U.S. dollar rebounded against the yen on Tuesday, with Sony rising 0.8%, Sharp adding 1.7% and Toyota Motor tacking on 1.5%. Shares got an additional fillip after some companies reported strong earnings late in the morning session.

"Good earnings from the corporate sector may help the market rally for now, but gains may be temporary ahead of the FOMC meeting next week," said Yutaka Miura, senior technical analyst at Mizuho Securities.

Industrial robot maker Fanuc added 2.1% after reporting April-September net profit of Y55.82 billion, compared with an earlier forecast of Y48.80 billion.

Fuji Heavy Industries rose 6.8% after the company raised its first-half net profit outlook to Y44.00 billion from its previous forecast of Y23.00 billion.

Mitsubishi Corp. rose 1.3% after the Nikkei reported the trading house's consolidated net profit for the April-September period jumped 89% from a year earlier on strength in its energy and mineral operations, while the automobile market in Southeast Asia also helped lift profit.

The South Korean market was taking a breather after its recent rally, with investors taking to the sidelines ahead of earnings reports later in the week.

LG Electronics was off 1.5%, Hynix Semiconductor lost 3.4%, while Hyundai Motor gave up 0.6%. These firms are due to report their third-quarter earnings on Thursday. Most analysts remain concerned about fourth-quarter earnings outlook, especially for tech firms, amid anecdotal evidence consumer demand remains tepid.

Among other markets, New Zealand's NZX-50 fell 0.2%, Singapore's Straits Times Index lost 0.8%, Taiwan's Taiex shed 0.5% and Indonesian shares slipped 0.1%, while Malaysia's KLCI rose 0.2%. Thailand's SET lost 0.1%, Philippine shares edged up 0.1% and India's Sensex was off 0.1%.

In foreign exchange markets, the dollar gained ground against the euro and the yen after the Wall Street Journal reported the central bank is likely to unveil a program of U.S. Treasury bond purchases worth a few hundred billion dollars over several months, a measured approach in contrast to purchases of nearly $2 trillion it unveiled during the financial crisis.

The euro was fetching $1.3817 against the greenback, from $1.3855 late in New York on Tuesday, and at Y112.90 against the yen, from Y112.90. The dollar was buying Y81.70, compared with Y81.47.

"It may still be some time away, but it is not out of the question that an improving trend in the U.S. economy after recent monetary stimulus through higher equities, lower credit spreads, lower bond yields, lower mortgage rates and a weaker U.S. dollar, starts to help reduce the odds of a seemingly open-ended amount of Fed QE and helps stabilize the outlook for the U.S. dollar," said Greg Gibbs, currency strategist at RBS in Sydney.

The Australian dollar fell against the greenback after the inflation data as the market unwound expectations of an RBA hike. The currency was recently fetching US$0.9730, from US$0.9861 prior to the CPI release.

Lead December Japanese government bond futures were off 0.15 at 143.27 points, weighed by Tuesday's fall in U.S. Treasurys while the yield on the benchmark 10-year cash JGB was up 3.0 basis points at 0.930%.