Chinese shares slumped to drag Asian markets lower on Monday as concerns that Beijing may use monetary policy tools to restrict bank lending triggered a selloff in real estate and financial stocks.
The fall in Shanghai and elsewhere came after the People's Bank of China Friday raised banks' required reserve ratio for the seventh time since the beginning of 2009, by half of a percentage point.
"The consumer-price index is likely to rebound in January due to strong holiday demand after an expected slower growth in December, so the likelihood of another interest-rate hike is still high," said Zhang Yanbin, an analyst at Zheshang Securities.
The Shanghai Composite index slid 3% for its biggest percentage fall since Nov. 16.
The tumble caused a 1.6% fall in the Hang Seng China Enterprises index—an index of several large-capital Chinese stocks traded in Hong Kong. The benchmark Hang Seng index slid 0.5%.
Japan's Nikkei Stock Average ended little changed, Australia's S&P/ASX 200 declined 0.8%, South Korea's Kospi slipped 0.4% and Taiwan's Taiex gave up 0.5%.
India's Sensex, one of the worst performing Asian markets so far this year, fared better than most regional peers, rising 0.1%.
Dow Jones Industrial Average futures were down 11 points in screen trade. U.S. markets will be shut Monday for the Martin Luther King, Jr. Day holiday.
Leading the decliners on mainland bourses, shares of Poly Real Estate Group Co. crumbled 8.7% and China Vanke Co. shed 7%. Qingdao Haier Co. was down 9%, China Oilfield Services fell 8% and Cosco Shipping Co. was down 6.3%.
China Everbright Bank lost 5.3%, China Construction Bank lost 4.1% and Industrial & Commercial Bank of China fell 2.8% amid concerns the PBOC might increasingly use the reserve ratio as a tool to adjust banks' pace of lending. In Hong Kong, the three banks fell 1.9%, 2.1% and 1.3%, respectively.
"The People's Bank of China is shifting toward using reserve requirements as a primary tool to limit credit growth," Mark Williams, senior China economist at Capital Economics wrote in a note to clients, adding that they expect six additional reserve ratio hikes in 2011.
In Tokyo, construction-machinery makers linked to Chinese demand were also dragged down by Beijing's reserve-requirement ratio hike Friday.
Komatsu fell 1% and Hitachi Construction Machinery slid 1.3%.
Tsuyoshi Segawa, equity strategist at Mizuho Securities, said that investors will be looking to U.S. corporate earnings this week, but since a solid outcome has mostly been priced in, New York and Japan shares may fall.
In Mumbai, technology and consumer stocks helped the market recover some of its sharp recent losses.
Infosys, which fell sharply in the wake of disappointing results last week, rose 1.7%, while Tata Consultancy Services also gained 2.2% in afternoon trade. Cigarette and consumer-goods maker ITC climbed 2%.
In Sydney, weakness in mining stocks offset strength in the consumer-staples sector, though trading was quiet due to the long weekend in the U.S.
"We have definitely underperformed Wall Street, but the issue is that the U.S. market is predominantly being lifted by non-commodity-based stocks, but in Australia, any doubt about the performance of commodity prices, going forward, sees our market sell commodity-based stocks," said Macquarie Private Wealth's Marcus Droga. "There's just a bit of short-term skepticism in the market."
BHP Billiton fell 1.2% and Newcrest Mining shed 1.3%, while Woolworths gained 0.5% and Wesfarmers added 0.2%.
Gloucester Coal jumped 4.1% to $13.60 Australian dollars ($13.44), up sharply from A$10.16 on Dec. 3, when Bowen Basin coal miners declared force majeure.
In Seoul, the technology sector was lifted by investor optimism over the U.S. economic recovery and demand for electronic goods after U.S. retail-sales data showed a slight increase in December. Samsung Electronics rose 1.7% and LG Electronics gained 1.3%.
However, car and chemical makers declined on profit taking, with Hyundai Motor dropping 1.3% and LG Chem shedding 1.7%.
Taiwanese construction stocks fell on concern the government may launch more measures to cool the property market. Taiwan?s central bank lowered the loan-to-value ratio for mortgages on second homes to 60% from 70% after raising interest rates at its Dec. 30 policy meeting. Cathay Real Estate Development dropped 3.3%.
Elsewhere, New Zealand's NZX 50 fell 0.5% and Philippine stocks finished 0.4% higher.
In afternoon trading, Singapore's Straits Times index slid 0.3%, Indonesian shares lost 1.3% and Thailand's SET gave up 0.9%.
In foreign-exchange markets, the euro fell against the U.S. dollar and the Japanese yen. Trade was subdued with many investors sidelined because U.S. markets were shut Monday, and many were looking to the euro-zone finance ministers? meeting as well as Chinese economic data this week for cues.
The euro was at $1.3295 compared with $1.3387 in late New York trade Friday, and at 110.19 yen, compared with 110.95 yen. The dollar was at 82.87 yen from 82.85 yen.
Lead Japanese government bond futures were down 0.17 at 139.88 points, tracking the weakness in U.S. Treasurys Friday. The benchmark 10-year yield was up 1.5 basis points at 1.210%.
Tetsuya Miura, chief market analyst at Mizuho Securities, said the benchmark 10-year JGB yield could rise to 1.230% this week from 1.200% Friday. "When you look at the external factors, the pattern of expectations for economic recovery and strong stocks have weighed considerably on considerations among (JGB) market participants," Miura said.
Spot gold was at $1,362.50 per troy ounce, up 70 cents from its New York close Friday.
February crude-oil futures were down 40 cents at $91.14 per barrel on Globex.
Write to Colin Ng at colin.ng@dowjones.comqtdz
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