Asia stocks fall as focus stays on US central bank

Asian stock markets fall as attention remains focused on US Federal Reserve

Associated Press
Emerging markets take brunt of Fed tapering fears

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An investor gestures at a private securities company Monday Aug. 19, 2013 in Shanghai, China. Asian stock markets were little changed Monday as traders weighed the consequences of an anticipated phasing out of the U.S. central bank's unprecedented stimulus program. (AP Photo)

BANGKOK (AP) -- Asian stocks slid Tuesday as investors, particularly those investing in up-and-coming markets, braced for the possible phaseout of a U.S. central bank stimulus program that has boosted stock prices worldwide.

Stock benchmarks and currencies in emerging economies such as India and Indonesia have been hammered as funds flowed out of their stock markets in anticipation the Federal Reserve will start reducing its extraordinary support for the U.S. economy.

Indonesia's benchmark index, which dived 5 percent on Monday, tacked on another 4.1 percent in losses by midday Tuesday. India's Sensex fell 0.8 percent after dropping 5.6 percent in the previous two sessions.

The idea behind the Fed's "quantitative easing" program of government bond purchases and super low interest rates was to spur borrowing and investment through easy access to liquidity. It also sparked big gains in stocks markets.

"When they first rolled out the quantitative easing program several years ago, that created a lot of liquidity and it went into emerging markets, where investors were seeking higher returns," said Jackson Wong, vice president of Tanrich Securities in Hong Kong. "When the Fed starts to taper or scale back ... that would create the reverse effect of a few years ago, when funds were flowing into emerging markets and emerging markets were booming."

Traders were awaiting the release of the minutes from the Fed's July policy meeting for hints of whether and when the bank might begin cutting back on its bond-buying. Recent economic data and public statements by Fed policymakers have led to expectations that the Fed might begin winding down its $85 billion a month in purchases next month.

The focus will remain on the Fed on Thursday, when it starts its annual conference in Jackson Hole, Wyoming.

"The volatility these two events could cause to markets could see bond yields overshooting fair value, and equity markets logging five and six day losing streaks," said Evan Lucas of IG in Melbourne, Australia.

Japan's Nikkei 225 index fell 1.3 percent to 13,575.56. Hong Kong's Hang Seng dropped 1.5 percent to 22,120.54. Australia's S&P/ASX 200 lost 0.7 percent to 5,073.90. South Korea's Kospi fell 0.9 percent to 1,900.10.

A reduction in the Fed's bond purchases could contribute to lower bond prices and higher yields. That has sparked jitters among Wall Street investors, who fear higher lending costs could stifle economic recovery.

Stocks fell Monday as investors continued to sell bonds, pushing yields to multi-year highs. The yield on the 10-year Treasury note rose to 2.88 percent, the highest since July 2011. The Dow Jones industrial average fell 0.5 percent to close Monday at 15,010.74. The Standard & Poor's 500 dropped 0.6 percent, to 1,646.06. The Nasdaq composite fell 0.4 percent to 3,589.09.

Meanwhile, the deficit in Indonesia's current account — a broad measure of its trade and investment transactions with the rest of the world — also has been grabbing attention.

The current account deficit widened to 4.4 percent of gross domestic production in the second quarter of 2013, analysts said, as exports slumped and imports rose.

"The current account may remain in a structural deficit and persist for longer, unless commodity prices and demand recover more significantly," said analysts at Bank of America Merrill Lynch in a commentary.

Meanwhile, analysts at Credit Agricole CIB in Hong Kong called both Indonesia and India "vulnerable," and noted that Moody's decision to maintain a stable outlook on India's credit rating "is unlikely to change pressure on its assets."

Benchmark oil for September delivery was down 23 cents at $106.62 per barrel in electronic trading on the New York Mercantile Exchange. The contract closed down 36 cents to $107.10 on the Nymex on Monday.

In currencies, the dollar fell to 97.42 yen from 97.62 yen late Monday. The euro rose to $1.3347 from $1.3333.


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