Asian shares on defensive, hoping for China stimulus plan

NDTV Profit Desk

25 Mar 2014, 07:26 AM IST

Asian shares were in a defensive mode on Tuesday after Wall Street fell overnight, though still-vague hopes of a new stimulus plan in China could improve investor sentiment.

US Treasuries prices fell, with the benchmark two-year yield hitting a six-month high as investors grew nervous that the Federal Reserve may raise interest rates sooner than expected. Bond yields rise when prices fall.

MSCI's broadest index of Asia-Pacific shares outside Japan dipped 0.1 per cent as Australian shares fell 0.5 per cent, while Japan's Nikkei dropped 0.5 per cent.

On Wall Street, the Nasdaq Composite Index led the losses with a fall of 1.2 per cent to five-week low, as investors took some money off recent top performers such as biotech shares. The S&P500 Index fell 0.5 per cent to 1,857.44.

Concerns over Ukraine and soft US manufacturing were cited as possible catalyst, though market players noted the selling could also reflect unwinding of positions ahead of the quarter-end.

The survey on US manufacturing by financial data firm Markit also showed US manufacturing activity slowed in March.

US President Barack Obama and major industrialised allies warned Russia on Monday it faces additional economic sanctions if President Vladimir Putin takes further action to destabilise Ukraine following the seizure of Crimea.

"In short, there's nowhere to put money at this point. Investors are generally upbeat on the US but they want to see more evidence that the weakness in some of the recent data is due to a bad weather," said Tohru Yamamoto, chief fixed income strategist at Daiwa Securities.

Yet short-term US bond prices are under pressure after Federal Reserve Chair Janet Yellen said the Fed could raise rates six months after its current bond-buying programme ends - potentially as soon as spring 2015.

Even as the US 30-year yield fell to 3.56 per cent, near this year's low of 3.525 per cent, short-dated debt yields moved in the opposite direction, flattening the yield curve sharply.

The US two-year yield shot to six-month high of 0.4655 per cent also due in part to caution over the two-year debt sale on Tuesday, the first leg of US government issuance this week totalling $96 billion.

Rising US short-term rates were undermining the attraction of precious metals, with gold was fetching $1,308.91 per ounce, close to Monday's near one-month low of $1,307.54.

Silver tumbled to a six-week low of $19.84 and last stood at $19.89.

In contrast, emerging markets were generally resilient after weak Chinese manufacturing data on Monday sparked expectations the Chinese government could unveil stimulus measures following Monday's weak survey of manufacturing.