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Asian stocks hit a fresh 9-1/2-month low on Friday while spot gold slipped to its lowest price in nearly three years as the US Federal Reserve's plan to scale back stimulus continued to worry investors.
But China's central bank offered some comfort to stressed money markets, relieving Thursday's crushing liquidity squeeze with "window guidance" to major state banks to resume supplying funds, after indicative interbank rates reached highs above 25 % on Thursday.
The benchmark weighted-average seven-day bond repurchase rate tumbled 351 basis points to 8.12 %, and the overnight repo rate fell 378 bps to 7.96 %.
The two short-term rates hit record highs on Thursday as the central bank again ignored market pressure to inject funds into the market, a move traders and analysts see as an attempt to force banks and other financial institutions to trim non-essential businesses.
Spot gold rebounded with an 0.8 % rise to $1,287.49 an ounce after touching its lowest since September 2010 of $1,268.89 earlier, after falling more than 5 % overnight in one of bullion's biggest routs since the 2008 financial crisis.
MSCI's broadest index of Asia-Pacific shares outside Japan slipped 0.8 %, after dipping more than 1 % earlier to its lowest since September. The index closed Thursday down 3.87 % for its biggest daily %age fall since November 2011.
Australian shares trimmed earlier losses to fall 0.3 % while South Korean shares also curbed some losses after skidding 2.4 % to their lowest in 11 months. Hong Kong and Shanghai shares fell 1.2 % and 0.8 % respectively.
Japan's benchmark Nikkei stock average, which earlier fell more than 2% to a one-week low, was last down 0.9 %.
"Clearly, the Fed tapering is on the table now. There is a reversal of perception in liquidity and it will take some time for investors to digest, rebalance and what not," said Adrian Foster, head of financial markets research for Asia-Pacific at Rabobank International in Hong Kong.
He added, however, that over the longer term financial markets will regain stability starting with the US bond market as the real motivation behind the Fed's slowing down of stimulus is an improving US budget deficit.
"There are massive buying opportunities coming out of this," he said.
US Treasuries stabilised in Asia, with the benchmark 10-year yield little changed from late New York levels of 2.42 %, after hitting the highest since August 2011 at 2.471 % on Thursday when Wall Street shed about 2.5 % and European shares saw their steepest one-day decline in 19 months.
The CBOE Volatility Index, which gauges expected volatility in Wall Street, spiked 23.1 % to 20.49 on Thursday, its highest close so far this year.
The Australian dollar, often seen as a gauge for risk appetite, also recovered to trade at $0.9235, after taking a harsh beating overnight to touch its lowest in nearly three years of $0.9163. The resource-reliant Aussie was also weighed by weak Chinese manufacturing activity.
The dollar was likely to remain supported by the prospect of the Fed tapering based on an improving economy, with data on Thursday showing US home resales hit a 3-1/2-year high in May and factory activity in the Mid-Atlantic region rebounded this month.
The dollar was down 0.2 % against the yen at 97.05, moving away from its 10-week low of 93.75 yen hit last week.
Emerging market currencies were expected to remain pressured by the changing emphasis of the Fed's stimulus plan.
"The combination of rising asset volatility and a steepening US yield curve will likely weigh on currencies reliant on capital imports," Morgan Stanley said in a research note.
"Commodity and emerging markets countries with current account deficits and large foreign funding liabilities should see significant pressure, as global rebalancing slows demand for raw materials."
The Indian rupee slumped to a record low of 59.9850 on Thursday as the country's record high current account deficit deepened its vulnerability, with the Fed's signalling a looming end to the cheap money that has funded India's current account deficit.
US crude futures reversed earlier losses to inch up 0.1 % to $95.24 a barrel while Brent rose 0.3 % to $102.45.
