Asian stocks came under modest pressure on Monday, with dismal economic data and doubts about prospects for the financial industry outstripping investor relief that a U.S. economic stimulus bill had finally passed.
The British pound fell, particularly against the yen, after the Group of Seven rich nations meeting over the weekend passed without public mention of sterling's sharp weakness or the yen's persistent strength.
The yen remained firm despite a report showing Japan's economy shrank by the most since 1974 in the fourth quarter of 2008 compared with the previous three months, weighing on the Nikkei share index. The global economy fell off a cliff at the end of last year, further confirmed after a report last week showed a record contraction in the euro zone economy.
"There is negative sentiment as the U.S. and European financial sectors remain under strain. There is still a fair amount of negative news out there," said Dominic Vaughan, senior dealer at CMC Markets in Australia.
The Nikkei slipped 0.2 percent in choppy trade, with technology-driven companies like Kyocera Corp and TDK among the biggest drags on the index.
The MSCI index of Asia-Pacific stocks outside Japan dropped 1.7 percent, with financials, consumer staples and materials sectors the largest reasons for weakness.
Hong Kong's Hang Seng index declined 2 percent, led by a 3.3 percent drop in HSBC stock. Shares of Bank of East Asia were the top percentage loser, down 5 percent, ahead of annual results due on Tuesday, with analysts expecting a 90 percent drop in profits.
The benchmark S&P/ASX 200 index in Australia fell 0.8 percent, with bank stocks under fire.
WAITING GAME
Investors to some extent have to just sit and wait for varied government stimulus packages to filter to through to businesses and families.
U.S. President Barack Obama will sign a $787 billion economic stimulus package of tax cuts and infrastructure investment on Tuesday after weeks of acrimonious debate, while Japanese Economics Minister Kaoru Yosano said the government was not considering additional stimulus action until a budget for the current fiscal year is passed.
Even as investors played a waiting game, doubts lingered about a fix for the bank industry, still suffering from a drought of confidence and fears about landmines on their balance sheets.
In terms of asset allocation, global investors have largely been focused on scooping up bargains in U.S. corporate bonds and hoping for growth in Chinese equities.
Greater China equity funds saw the most capital inflow last week since late April 2008 while U.S. bond funds took in fresh money for a sixth straight week, according to Boston-based research firm EPFR Global.
"The second week of February offered investors little to cheer about," EPFR said in a note. "But, as has been the case for the past three months, the latest flow data contained some bullish signals," citing new money in high yield bond funds and outperforming U.S. equity funds centered on growth.
The new U.S. bank rescue plan that would potentially cost $2 trillion was greeted unceremoniously by investors last week, frustrated by the lack of detail, especially with regard to how the banks' illiquid assets will be valued.
Not much action came out of the weekend's G7 meeting, though the policymakers in a statement softened their tone on the Chinese yuan and did not single out either the yen or sterling.
The dollar was at 91.64 yen, down 0.25 percent from late U.S. trading on Friday. The euro dropped 1 percent to 117.28 yen.
Against the yen, sterling was down more than 1 percent at 130.41.
U.S. crude futures rose 38 cents to $37.93 a barrel, extending a 10 percent rise on Friday, on hopes energy demand will pick up sooner rather than later after passage of the U.S. economic stimulus package.
