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Asia Stocks Fall on China Data; Seoul Outperforms

Thursday, 9 May 2013 | 3:10 AM ET

Asian stocks widened losses on Thursday as investors worried over rising inflationary pressures in China, but South Korean shares rallied over 1 percent after the Bank of Korea surprised markets with a 25 basis point cut.

The Korean central bank's move follows easing measures by the European Central Bank and the Reserve Bank of Australia over the past week.

"I think there's big change in market perception here. At the beginning of the year, lots of clients were asking me about who's going to be the first to raise interest rates. And what have we seen since Mr. Kuroda made his announcement on the 4th of April? We've had a significant increase in the amount of quantitative easing," said Adrian Mowat, chief Asian and emerging markets equity strategist at JP Morgan Securities (Asia Pacific).

Elsewhere, the Shanghai Composite snapped a four-day winning streak after China's inflation quickened at a faster-than-expected pace, while both Australia's S&P ASX 200 and Japan's benchmark Nikkei pared gains after charging to their highest level in nearly five years.

  Name Price   Change %Change
NIKKEI
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HSI
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ASX 200
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SHANGHAI
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KOSPI
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CNBC 100
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China's latest inflation data revealed food prices rose 4 percent in April, compared to March's increase of 2.7 percent. On the other hand, producer prices dropped 2.6 percent, as factories grappled with excess capacity due to weak demand.

BOK Cut Will Give Markets a Shot in the Arm
Martin Schulz, MD, International Equities at PNC Capital Advisors pinpoints the competitive devaluation scenario playing out in Asia as the major reason behind the Bank of Korea's interest rate cut.

BOK Lifts Kospi

Growth-sensitive cyclical counters rose after the central bank jumped on the global stimulus bandwagon after months of battling economic headwinds.

Infrastructure stocks were in the spotlight with builders Samwahn, Kumho Industrial and Namkwan jumping over 14 percent each..

"The rate cut will lower the funding cost of investment and may revive the prolonged slump of the property and construction sector. As the government is also pushing forward a supplementary budget and other fiscal stimulus packages, today's cut will help accelerate recovery and increase the upside of Korea's GDP," said analysts at Australia New Zealand Banking (ANZ) in a research note.

The move spelled relief for an overextended Korean won. The currency snapped a five-day winning streak on the news to weaken to 1,086 per U.S. dollar after hitting a two-month high at 1,081 earlier in the session.

Nikkei Ends Lower

In Tokyo, investors took profits as concerns of a short-term market pull-back rose after the benchmark index hit a fresh near five-year peak at 14,409.

Machinery stocks were sold-off with Sumitomo Heavy slumping 10 percent and JSW falling 8 percent as the yen appreciated 0.3 percent against the dollar in afternoon trade. Experts say the currency has been unable to breach the key 100 level since investors are rushing to purchase yen to buy domestic stocks as the Nikkei rallies.

The Relative Strength Index, which measures current price strength in relation to previous prices, indicates that the Nikkei has not yet dipped into oversold territory. For the past month, its RSI has traded in a range of 62 to 64, still below the 70-mark that implies an oversold market.

Watch Out! China Inflation Could Hit 3.5%
Stephen Schwartz, Asia Chief Economist at BBVA says inflation could rise up to 3.5 to 3.8 percent by year-end and describes the potential fiscal and monetary measures Beijing might take.

Shanghai Slips 0.6%

Mainland stocks lost ground after Chinese producer prices slid more than expected in April. Anhui Conch Cement shed nearly 4 percent on concerns of oversupply in the basic materials industry.

The index has now lost 1 percent since hitting a six-week high at 2,255 points in the previous session.

Experts say April's inflation data leaves room for action from the People's Bank of China (PBOC).

"We expect 2 to 3 RRR (reserve ratio requirement) cuts starting as early as May to support the economy. Interest rate cuts are possible as well, but the PBOC will be cautious, as the CPI inflation might exceed 4 percent in late Q3 due to low base effect and demand pickup by supportive policies," wrote analysts from Haitong Securities in a note.

Australian Below 5,200

Sydney stocks were lower after better-than-expected domestic employment data reduced the possibility of further monetary easing from the central bank.

The month of April saw the number of people employed rise by 50,100 jobs versus a forecast of 12,000. The data comes just two days after the Reserve Bank of Australia slashed interest rates to a record low of 2.5 percent.

Financial stocks weighed on the broader index. Australia New Zealand Banking (ANZ) fell over 3 percent, while shares of National Australia Bank (NAB) lost 2 percent after earnings came in just slightly ahead of analyst expectations.

"Considering market expectations after stellar results from ANZ and Westpac, this (NAB's earnings) might be taken as a disappointment. Once more NAB is playing catch up - every time the bank takes a good step forward, its peers continue to skip away," wrote Evan Lucas, market strategist at IG in a note.

By CNBC.com's Nyshka Chandran. Follow her on Twitter @NyshkaCNBC

  Price   Change %Change
NIKKEI
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ASX 200
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S&P 500
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DJIA
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7203.T
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NAB
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KOSPI
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SHANGHAI
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USD/KRW
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JPY/USD
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AUD/USD
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