Asian stocks slipped on Friday, at risk of a seventh straight day of losses, led by selling in the technology sector, though cheap valuations kept Japan's market in the black.
Markets from commodities to stocks shrugged off China's keenly awaited trade data, which showed on Friday that the country's surplus widened, although less than expected.
Stocks such as Japan's Nikkei received an early boost after a report showed the U.S trade gap narrowed unexpectedly in April, suggesting stronger second-quarter economic growth than many economists had expected, though that quickly gave way to some profit taking.
"Given that the Nikkei has risen for the past three sessions despite falls in Wall Street, some players may think it's time for profit-taking," said Takashi Hiroshi, chief strategist at Monex Securities.
Australian shares were up 0.3%, easing slightly from the 1% gains after they opened, while Korean shares turned lower pressured by an interest rate hike.
The MSCI index for Asia-Pacific shares outside Japan slipped 0.4%, heading for its seventh consecutive week of losses and is down for the year.
The Chinese stock market, however, trended lower on concerns over further monetary tightening from Beijing. Chinese shares were the worst performers in the region in May.
Shares of Tencent Holdings , China's most valuable Internet company, dropped 3.5% to a two-month low and weighed on the broad market in Hong Kong, underscoring the bearishness in technology shares on Friday.
The MSCI index for Asia-Pacific technology shares outside Japan led declines, falling 1.2% in a bit of catch up after outperforming all sectors expect for telecoms month to date.
BONDS DRAW FUNDS
Even as equities registered yet another torrid week, bonds continued to outperform as data from fund tracker EPFR Global showed emerging market bond funds received new money aggregating $1.4 bln in the week to June 8, an eight-month high, compared to tiny outflows from equity funds.
Measured in dollar-adjusted terms, total returns for the broader JP Morgan GBI-EM Asian index is nearly 2.5% so far this year with gains set to accelerate as most Asian central banks are set to keep off from tightening policy further.
This week alone, four out of five central banks in the region held interest rates steady with Australia and Indonesia even injecting a tone of dovishness in their policy statements.
"EM is slowing due to a number of factors, one of which is the impact of increased tightening as a result of inflationary pressures brought on by excess global liquidity conditions," said Robert O Abad, a U.S.-based analyst with Western Asset Management, which oversees over $480 bln in assets.
Expectations of further quantitative easing by the Fed also receded after the unexpectedly strong U.S. trade data offered a glimpse of hope that the world's biggest economy may be recovering quickly.
Abad said that although the end of QE2 would be negative for technical flows into risky markets, there was an upside.
"It would be a positive for the real economy side of EM as a deceleration in capital inflows would mitigate the need for further tightening and capital controls which only curtail growth," he said.
In currency markets, the strong U.S. exports data pressured the euro – which has been hobbled by the festering euro zone debt crisis – to a one-week low against the dollar, even after the European Central Bank hinted at a July interest rate hike.
With the euro on the back foot, the dollar bounced to a one-week high against a basket of major currencies. The dollar index briefly rose as high as 74.297, well off a one-month low of 73.506 set earlier in the week.
Bonds suffered with yields on ten-year U.S. Treasury notes rising back to near the 3% line after dipping to a low 2.94% earlier this week.
Brent crude oil prices extended gains to a one-month high of nearly $120 per barrel after OPEC's surprise failure to reach a deal on raising output raised concerns of tighter supplies later in the year.
