Asian stocks dropped on Monday as a spate of weak economic data from China and the U.S. renewed concerns about the health of the global economy although sharp declines look unlikely before an emergency meeting to stem the spreading debt crisis.
The euro weakened to a two-week low versus the dollar and Swiss franc amid worries that the debt crisis was spreading to Italy, the region's third largest economy.
Markets have barely begun recovering from an extended period of volatility in the first half of 2011, when a perfect storm in the shape of slowing growth in China, worrisome news from the euro zone and little progress to avert a looming U.S. debt default deterred demand for risky assets once again.
Stocks in Australia fell by more than 1% after it unveiled a plan to tax carbon emissions from the nation's worst polluters, sending shares of coal miners, steel and airlines such as Macarthur Coal , BlueScope Steel and Virgin Australia tumbling.
Japanese shares fell 0.5% after hefty gains last week, with banks bearing the brunt of the losses.
But in a sign that further steep declines may be unlikely at least before the earning season kicks off this week, most Asian markets were trading above the day's lows with some scattered buying seen in defensive counters like utilities.
"The correction has been relatively mild and suggests that investors are not all that bearish as they could have been, suggesting a preference towards buying on dips rather than selling into strength," said Khiem Do, chairman of Asia multi-asset team at Barings Asset Management in Hong Kong.
"This is a good day for bargain hunting, especially among investors who haven't participated in the rally earlier."
Before Monday's drop of 1%, the MSCI index of Asia-Pacific shares outside Japan had gained for three consecutive weeks as investors bet that the second half held better prospects for risky assets than the first.
But Friday's much-awaited U.S. non-farm payrolls data revealed the economy created only 18,000 jobs in June, well short of an expected 90,000, dashing optimism that the economy was emerging from a soft patch.
And if investors needed further worries over the health of the global economy, data on Saturday showed annual inflation in China accelerated to a three-year high in June with the consumer price index up 6.4% from a year earlier, slightly above analyst expectations.
NUANCED APPROACH
In currency markets, the euro held around the $1.42 line on some light short-covering after falling to a two-week low of $1.4187 in early Asian trade with some technical support seen around the $1.4150 line.
European Council President Herman Van Rompuy has called an emergency meeting of top officials dealing with the euro zone debt crisis for Monday morning, sources told Reuters.
Even as investors fretted about its fiscal health, pushing Italian bond yields to euro lifetime highs on Friday, the Financial Times reported that some EU leaders were considering allowing a selective default by Athens to put its debt on a more sustainable footing.
Taking a leaf out of the weaker tone in equities, most Asian currencies slipped against the dollar with the weak payrolls data implying policymakers would be reluctant to use currency gains to counter rising inflation in the face of weak external demand.
Frederic Neumann, co-head of Asian economics at HSBC says price pressures in much of Asia is driven by local demand which exchange rate swings can do little to counter, suggesting central banks would rely on more traditional methods of policy tightening such as interest rates.
Reduced demand for risk boosted prices of perceived safe-haven assets like U.S. Treasuries and gold with yields on 10-year U.S. notes steadying at 3.02% on Monday from 3.18% barely a week ago. Gold held above the $1540 an ounce line.
Oil trended lower with U.S. crude falling by more than $3 to below $96 a barrel as the weak data cast a shadow on the economic outlook.
