Asian shares pared early gains on Friday after China's first-quarter growth was slower than expected, clouding the outlook for demand, but a better-than-expected outcome for Italy's sovereign debt sale helped investors retain some risk appetite.
While Asian shares held up relatively well, disappointment over China is expected to result in a mixed start for European equities, as major U.S. and European stock indexes jumped over 1% on Thursday on the positive outcome of the Italian bond auction and speculation that China's data would top forecasts.
Financial spreadbetters predicted major European markets would open between 0.2% down and 0.1% up. U.S. stock futures were down 0.3%.
MSCI's broadest index of Asia Pacific shares outside Japan was up 0.9%, easing from a rise of 1.3% prior to the Chinese data, while Australian shares also trimmed earlier gains to stand up 0.8%, off a 1% rise before the Chinese announcement. The pan-Asia index is set to end the week flat.
The annual rate of China's gross domestic product expansion eased to 8.1% in the first quarter from 8.9% in the previous quarter, data showed, below a 8.3% forecast and the weakest pace in nearly three years.
It was the fifth consecutive quarter of slowing GDP, raising investor concerns that the slowdown has not bottomed and more policy action would be needed to halt it.
Hong Kong shares rose on Friday with gains pulling the benchmark index into positive territory for the week as investors focused on improving bank lending and money supply on the mainland.
Japan's Nikkei average rose as high as 1.6% but retreated to stand up 1%.
NTH KOREA INTIMIDATION IGNORED
The Asian markets shrugged off a rocket launch by North Korea before they opened. South Korea's Defense Ministry said the rocket exploded in the initial minutes of flight, then fell in 20-odd pieces off South Korea's west coast.
Seoul shares kept early gains to stand up 0.7% and the South Korean won touched a one-week high.
The Australian dollar fell below $1.040 from around $1.0430 before the Chinese GDP data was released. Australian shares and currency are highly sensitive to economic data from China, which is Australia's top trade partner.
Most emerging Asian currencies were also higher on Friday with the Singapore dollar rising as the central bank surprised markets with unexpected tightening, while the won outperformed regional peers with risks from the North Korea's rocket cleared.
The dollar firmed against a basket of major currencies as a weaker-than-expected Chinese growth spurred some risk aversion, helping to bring gold slightly lower, or down 0.1%, to $1,673 an ounce.
Brent crude futures slipped towards $121 as demand growth worries resurfaced after China's economic expansion lagged expectations, while caution ahead of talks between Iran and world powers and North Korea's missile launch capped losses.
EURO DEBT ISSUE REMAINS
Italy's debt rallied for a second day on Thursday after mixed results from its 4.88 billion euro sale, as some had anticipated a weaker auction after Spain failed to draw enough demand for its auction last week.
Thursday's sale brings Italian bond issuance to nearly 37% of an estimated yearly target of 215 billion euros, while Spain is almost halfway through its annual funding plan.
The euro eased 0.1% to $1.3170, after hitting a 1-week high of $1.3213 on Thursday. The dollar inched up 0.2% against the yen at 81.05 yen.
Asian credit markets firmed with the rising equities, narrowing the spread on the iTraxx Asia ex-Japan investment-grade index by about 2 basis points.
