Asian markets stumble as China tightens monetary policy

Markets in Japan, China, Hong Kong, South Korea, Singapore and India all finished down.

Asian traders took cues from Wall Street, where heavy selling pushed the Dow Jones industrial average 3.8 per cent lower last week. And many investors were cautious ahead of the US Federal Reserve’s meeting on Tuesday and Wednesday.

A rise in oil prices – despite Saudi Arabia’s pledge to increase production – further hurt sentiment.

In Japan, stocks dropped for a third day, with the benchmark Nikkei 225 index falling 0.6 per cent to 13,857.47. It was the lowest close since late last month.

Losses were driven by worries over the health of the country’s car manufacturers, coupled with apprehension of further losses at American banks hit by the subprime mortgage crisis, analysts said.

“Today was a reflection of the US,” said Motomi Hiratsuka, head of sales trading at BNP Paribas in Tokyo.

Large domestic financial firms took a beating. Shinko Securities Co dropped 2.4 per cent.

Domestic car makers also had a tough day, as Toyota Motor Corp slid 1.9 per cent and Nissan Motor Co retreated 2 per cent.

Investors sold such shares after a spate of bad news about US automakers on Friday, when Ford Motor Co said it would delay production of its new F-150 pickup truck and announced further factory cuts. Standard & Poor’s Ratings Services also said it may cut its credit ratings on several US car companies.

In mainland China, stocks resumed their slide after the country’s top central banker warned monetary policy could be tightened further to control inflation, which rose 7.7 per cent in May over the same time last year.

The government has raised interest rates repeatedly over the past two years to cool a boom in exports and spending on real estate and other assets. Investors fear higher interest rates could dent retail and housing sales and cool overall growth.

The benchmark Shanghai Composite Index dropped 2.5 per cent to close at 2,760.42.

The index rose 3 per cent on Friday on expectations that a hike in state-set retail oil prices would help Chinese refiners. On Monday, though, traders appeared to be worried that even that increase was inadequate and that higher energy costs would damage other companies.

“The market is still in a downward trend and investors worried that the oil price rise will push up inflation,” said Zhang Xiuqi, a market analyst for Guotai Junan Securities.

China Petroleum and Chemical Corp, also known as Sinopec, Asia’s biggest oil refiner by volume, fell 8.9 per cent on profit worries. China’s other major oil company, PetroChina Ltd, shed 3.2 per cent.

Other declines included Wuhan Steel Ltd, which fell the full 10 per cent allowed in a single day.

China’s weakness dampened Hong Kong’s market, where the blue-chip Hang Seng Index closed down more than 0.1 per cent to 22,714.96 after a volatile session.

Aluminum Corp of China, or Chalco, helped drive the losses on news that its profits could decline by more than 50 per cent in the first half of this year, partly because of higher energy costs. The country’s largest aluminum producer plunged more than 5.7 per cent.

Thailand’s markets were flat amid worries over the country’s political stability. The country’s embattled prime minister is facing no-confidence vote this week, as well as continued street protests calling for his resignation.

Pakistani stocks tumbled amid persistent concerns about interest rates, inflation and ongoing political uncertainty. The Karachi Stock Exchange’s 100 Index sank 493.11 points, or 4.2 per cent, to 11,162.17. Since hitting a peak in mid-April, the index has tumbled nearly 29 per cent.

Elsewhere, India’s benchmark Sensex was off 1.9 per cent.

In currency trading, the dollar stood at 107.57 yen mid-afternoon in Tokyo, up from 107.30 late Friday. China’s yuan rose to 6.8740 to the US dollar, up from Friday’s close of 6.8801.