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 Equities were already on the back foot after minutes of the Federal
Reserve's latest policy meeting showed it remained on track to taper
its stimulus.
MSCI's broadest index of Asia-Pacific shares outside Japan
<.MIAPJ0000PUS> extended losses after the China survey, losing 0.7
percent, while Japan's Nikkei stock average <.N225> was down 1.2
percent.
The preliminary China Purchasing Managers' Index (PMI) from HSBC/Markit
for February fell to a seven-month low of 48.3 in February from
January's final reading of 49.5, as employment fell at the fastest
pace in five years.
"The building-up of disinflationary pressures implies that the
underlying momentum for manufacturing growth could be weakening,"
said Qu Hongbin, chief economist for China at HSBC, in comments
accompanying the PMI data.
"We believe Beijing policymakers should and can fine-tune policy to
keep growth at a steady pace in the coming year."
Signs of weakness in the world's second-largest economy was one of
the triggers for last month's selloff of emerging market assets. A
series of PMIs in January showed growth in China's manufacturing and
services sectors at multi-month or multi-year lows.
However, those disappointing PMI readings were countered by
surprisingly buoyant growth in exports and bank lending, which
suggested that economy was not faring as badly as some feared.
Sentiment in Tokyo was further darkened by data showing Japan posted
a record trade deficit in January, as export growth slowed and
imports outpaced shipments as a weak yen boosted import costs.
On Wall Street on Wednesday, the Dow Jones industrial average <.DJI>,
the Standard & Poor's 500 Index <.SPX> and the Nasdaq Composite
Index <.IXIC> all skidded, following release of the Fed minutes.
The minutes showed members on the Fed's policy setting committee
emphasized their commitment to trimming the central bank's
asset-purchase program in predictable $10-billion steps.
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John Williams, president of the San Francisco Fed, said late
Wednesday he would only back an interest rate hike if inflation was
closer to 2 percent, unemployment was dropping, and gross domestic
product growth was "above trend.
The yield on benchmark 10-year Treasury notes fell to 2.712 percent
after the China flash PMI report, compared with Wednesday's U.S.
close of 2.734 percent.
The yen, which often gains in line with investors' aversion to risk,
got a leg up against its rivals after the China flash PMI report.
The dollar's early gains unraveled and it slipped 0.3 percent to
101.97 yen, moving further away from a two-week high of 102.73 yen
hit on Tuesday.
The euro lost 0.3 percent to 140.16 yen, after it hit a three-week
peak above 141.00 yen on Tuesday.
The dollar index <.DXY> inched lower to 80.135, moving back toward
its Wednesday low of 79.927, which was its weakest since late
December.
The euro added about 0.1 percent to $1.3741, not far from the
previous session's high of $1.3773, which was its highest peak since
January 2.
In commodities markets, U.S. crude rose about 0.2 percent to $103.47
a barrel, after touching a four-month high on Wednesday after
forecasts for more cold weather next week.
Spot gold was nearly flat at $1,31.49 an ounce, steadying after
losing nearly 1 percent on Wednesday.
(Additional reporting by Adam Rose in
Beijing; editing by Shri Navaratnam)
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