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 MSCI's broadest index of Asia-Pacific shares outside Japan slid 0.5
percent, taking its losses to more than 7 percent so far this month
and nearing its lowest levels since March 9.
Financial spreadbetters at IG expected Britain's FTSE 100 to open
0.3 percent lower, Germany's DAX 0.2 percent and France's CAC 0.4
percent.
"The market seems to be taking a cautious stance ahead of the Fed
Chair Janet Yellen's speech later this week," said Jung Sung-yoon, a
foreign exchange analyst at Hyundai Futures.
A string of comments in recent weeks by Federal Reserve officials
and minutes of the last Fed meeting have put a possible rate hike
firmly on the table for June or July, reviving the dollar but
cooling appetite for riskier assets, even if markets are not totally
convinced a tightening will come so soon.
Philadelphia Fed President Patrick Harker said on Monday that a hike
in June is appropriate unless data weakens, while St. Louis Fed
President James Bullard said holding rates too low for too long
could cause financial instability.
With economic growth across emerging markets showing fresh signs of
flagging - ratings agency Moody's expects growth in G20 emerging
markets to ease to 4.2 percent in 2016 compared to 4.4 percent last
year - investors are growing more bearish on the outlook for stocks.
Shares in China and Japan led regional markets down with 0.7 percent
losses each, though some investors were wary of chasing markets
lower after their recent retreat.
Yang Hai, analyst at Kaiyuan Securities, said trading will likely
remain dull for a while as economic sluggishness discourages
investor participation.
"The current economic environment doesn't justify a sustainable
rebound. In addition, regulators are reducing leverage in the asset
management industry so money is not flowing in."
The dollar trimmed some of its losses against the yen after skidding
nearly 1 percent in the previous session to a low of 109.12. It was
last up 0.04 percent at 109.40 yen, moving back toward Friday's
three-week high of 110.59.
Data on Monday showed Japan posted a trade surplus for the third
consecutive month, and a Group of Seven finance ministers' meeting
concluded on Saturday with a U.S. warning to Japan against
intervention to weaken the yen.
But overall, the dollar was bolstered by growing bets that the Fed
was gearing up to raise interest rates sooner than many investors
had expected, despite signs of persistent global weakness.
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"The yen gained as risk aversion overcame the Fed officials' hawkish views.
Upward pressure on the yen was stronger due to weaker stocks and falling
commodities," said Junichi Ishikawa, FX analyst at IG Securities in Tokyo.
"That said, the dollar index has stood tall overall amid a significant rise in
the two-year U.S. Treasury yield. Trades preparing for a potential Fed rate hike
in June are likely to continue."
Fed Chair Janet Yellen will appear at a panel at Harvard University on Friday, a
day on which investors will also see the second estimate of U.S. first-quarter
growth. Markets also await comments from other Fed officials this week, as well
as data on new home sales, durable goods orders and consumer sentiment.
The dollar index, which tracks the U.S. unit against a basket of six major
counterparts, was up a shade at 95.33, still within sight of Thursday's peak of
95.520, its loftiest level since March 29.
The euro edged down 0.1 percent to $1.1210, holding above last week's low of
$1.1180, its weakest since late March.
Crude oil futures stabilized after dropping on Monday as Iran vowed to ramp up
output and as the number of rigs drilling for crude in the United States held
steady after declining for eight straight weeks.
U.S. crude slipped 0.2 percent to $47.91 a barrel, while Brent was off 0.3
percent at $48.21.
(Additional reporting by Lisa Twaronite and Shinichi Saoshiro in TOKYO, Samuel
Shen and Pete Sweeney in SHANGHAI; Editing by Kim Coghill & Shri Navaratnam)
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