Chinese Stocks Tumble, Australian Dollar Climbs

Stocks in Shanghai dropped as much as 3 percent Thursday, weighed by speculation China may take more steps to rein in liquidity, slashing the Australian dollar's gains, while copper slid from 10-month highs after disappointing U.S. services data.

U.S. stock futures edged lower as selling of Chinese stocks picked up and U.S. Treasurys climbed, with investors fearing a sentiment shift that would trigger corrective moves lower in risky assets that have had a steep rise in the last five months.

China's central bank late on Wednesday repeated that monetary policy will remain growth friendly, sticking with its view that the recovery was not solid, though said it would use market tools to fine tune policy after unprecedented loan growth in the first six months of the year.

In currency markets, the Australian dollar briefly was lifted to the day's high after surprisingly strong jobs figures in Australia. However, it gave up its gains and traded flat at US$0.8411 as the Chinese stock market tumbled.

Australian employment increased by 32.000 jobs in July, surpassing forecasts for a 20,000 drop. That fueled expectations that Australia's central bank will be the first among the Group of 10 countries to raise interest rates.

Oil prices eased slightly, staying below $72 a barrel.

Japan's Nikkei 225 Average climbed 1.3 percent to hit its highest close in 10 months as Honda Motor and other carmakers gained ground after a pull-back, helped by hopes for an extension of the U.S. auto sales rebate program.

South Korea's KOSPI finished 0.3 percent higher, helped by gains in Ssangyong Motor after news unionised workers ended their occupation of the company's factory, while LG Display gained on strong monitor sales.

Australian stocks rose 1.5 percent, with banks leading the gains on optimism their earnings would benefit from an improved economic outlook, particularly after a stronger than expected jump in the nation's July employment numbers.

More From CNBC.com:

• Get After-the-Bell Dow 30 Quotes
• Credit Spreads and Libor Data
• Futures and Pre-Market Data
• Currency Data

In markets still trading, Chinese stocks underperformed in Hong Kong, but the broad market was lifted by gains in blue chips HSBC and Chinese telecom companies China Mobile and Unicom. Chinese bulk carriers dropped, tracking an overnight fall in the main gauge for sea freight. China COSCO, the country's biggest shipping conglomerate, slid 2.6 percent

Singapore's Straits Times Index rose about half a percent. Neptune Orient Lines initially rose, but is now trading flat, after reporting a smaller-than-expected loss for the second quarter but warned it may post a "significant" loss for the full year.

China's Shanghai Composite Index pared back losses, but was still down 0.7 percent, weaker for a second stright session as worries mounted about possible liquidity tightening in the market after a central bank report that, while vowing to continue a loose monetary policy, said it would make minor adjustments. Financial and property shares were weak, with Industrial & Commercial Bank of China, the country's biggest lender, dropping 2.5 percent

© 2009 CNBC.com