Asian shares, emerging currencies tumble on Fed anxiety

Emerging Asian currencies took a battering and regional shares tumbled to six-week lows on Wednesday as mixed signals from Federal Reserve officials raised fresh concerns about an imminent rollback of the US central bank's asset-buying stimulus.

 

The dour mood looked set to carry over into Europe, where financial spreadbetters predicted Britain's FTSE 100 to fall as much as 0.7 %, Germany's DAX off 0.4 % and France's CAC 40 to fall 0.3 %.

 

Jakarta's Composite Index stumbled 2 % to a two-month low as the Indonesian rupiah hit its weakest in more than four-and-a-half years. Foreign banks sold the currency despite the central bank's surprise rate hike in the previous session, sending it down as much as 0.7 % to 11,670 per dollar.

 

The Indian rupee slumped to a two-month low after surging consumer prices sparked fears the central bank would continue to raise interest rates and undermine economic growth at a particularly vulnerable time for the currency.

 

The Reserve Bank of India is likely to have stepped in to prop up the rupee via state-run banks, to keep it from falling further, traders said.

 

"Pockets of firm US data will reignite QE (quantitative easing) tapering concerns, pulling dollar higher and vulnerable Asian currencies lower," said Radhika Rao, economist with DBS in Singapore.

 

"After a brief respite, the headwinds for the Indian rupee are back at the fore by way of rate tightening fears and elevated inflation," she added.

 

MSCI's broadest index of Asia-Pacific shares outside Japan lost about 1.4 % to its lowest levels in more than a month, on track to mark a fifth straight decline. Japan's Nikkei stock average ended down 0.2 %.

 

Chinese shares underperformed after the initial communique from a key Communist Party policy meeting to set a blueprint for the coming decade's reform agenda offered them few concrete details.

 

The China Enterprises Index of the top Chinese listings in Hong Kong was down more than 2 %, while Hong Kong's Hang Seng Index fell 1.4 %.

 

US S&P E-mini futures dipped 0.3 % in Asian trade on Wednesday after the Standard & Poor's 500 Index posted modest losses in the previous session.

 

Atlanta Fed President Dennis Lockhart told reporters on Tuesday that a reduction of the central bank's quantitative easing program remains a possibility at the Federal Open Market Committee's next policy meeting on December 17-18, although he did say policy should remain very easy.

 

Data on Friday showed an unexpected surge in US jobs growth in October, suggesting the labour market could be strong enough for the Fed to begin to pare its $85 billion-a-month bond-buying programme sooner rather than later.

 

Global markets have been buffeted since May over speculation of an imminent end to cheap dollars, a major driver of assets in recent years. Indonesia and India, which have sizable current account deficits, seem particularly vulnerable to an exodus of capital toward more attractive dollar assets.

 

Signals from central bank officials have been mixed, with Narayana Kocherlakota, president of the Minneapolis Fed, speaking about the need for aggressive action to foster growth.

 

EURO STAYS ABOVE ECB-TRIGGERED LOWS

 

The US dollar wobbled but stuck close to recent ranges. It was off about 0.1 % at 99.45 yen after rising as high as 99.79 yen on Tuesday, its strongest level since September 13. The dollar faces resistance at 100 yen, above which it has not traded since September 11.

 

The euro was slightly up from US levels, holding well above lows set last week, when it suffered a heavy selloff on Thursday after the European Central Bank stunned investors by unexpectedly cutting its main rate to a record-low 0.25 %.

 

The common currency bought $1.3442, well above its two-month low of $1.3295 hit on Thursday, but still down nearly 3 % from a two-year peak of $1.3833 set last month.

 

The dollar index inched down about 0.1 % to 81.113, moving away from a two-month peak of 81.482 struck on Friday.

 

In commodities markets, gold gained 0.4 % to $1,273.11 an ounce but remained not far from the previous session's four-week low.

 

US crude for December delivery edged up to $93.16 a barrel after flirting with 4-1/2 month lows, while the benchmark three-month copper contract fell 0.9 % to $7,055 a tonne on the heightened speculation that the Fed will taper its stimulus.