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Chinese markets lower in a mostly higher Asian session, traders digest China PMI data

Employees iron fabric at a factory operated by the Shandong Ruyi Technology Group in Jining, China.
Qilai Shen | Bloomberg | Getty Images

Markets in Asia closed mostly higher on Monday, as traders shrugged off a slowdown in manufacturing activity among large enterprises in China, though Chinese shares slipped to a near one-month low.

Australia's ASX 200 closed up 25.03 points, or 0.45 percent, at 5,587.39, with the energy sub-index gaining 2.68 percent. In Japan, the benchmark closed up 66.50 points, or 0.4 percent, at 16,635.77, reversing earlier losses of near 1.2 percent. The Topix closed near flat at 1,321.83, also reversing most of its near 1.5 percent losses from early trade.

Across the Korean Strait, the Kospi closed 13.42 points higher, or 0.67 percent, to 2,029.61. In Hong Kong, the gained 237.77 points, or 1.09 percent, to 22,129.14.

Chinese mainland shares, however, sold off, with the composite closing down 25.95 points, or 0.87 percent, at 2,953.38, and the Shenzhen composite was off by 28.90 points, or 1.48 percent, to 1,912.64.

In China, the official manufacturing purchasing managers' index (PMI), which tracks the health of large and state-owned enterprises, came in at 49.9 in July versus a Reuters poll that predicted a 50.0 reading, and compared to the 50.0 logged in June. But on a more positive note, the services sector showed an uptick in activity, with July PMI coming in a 53.9 versus 53.7 in June.

A private survey of small-to-medium sized companies, released after the official PMI numbers, showed an expansion in activity, with output, new orders and buying activity all returning to growth, according to the Caixin China General Manufacturing PMI report.

The Caixin manufacturing PMI came in at 50.6 in July versus 48.6 in June. A print above 50 indicates expansion in activity.

"In the second half of 2016, the traditional manufacturing sector is likely to continue to face strong headwinds as efforts to reduce overcapacity continue," said Louis Lam and David Qu of ANZ Research. "Today's data do not bode well for GDP growth in H2."

But HSBC economist, Jing Li, said the July PMI data and the Caixin manufacturing PMI number "pointed to some signs of stabilization" despite lingering challenges.

"The biggest surprise today came from the Caixin Manufacturing PMI, which rose to the highest reading since February 2015," said Li. "The improvement was broad-based across sub-components, with the largest increases seen in output and new orders."

"We believe that the recent acceleration in infrastructure investment is a result of faster fiscal expansion and is one of the key reasons for today's improvement," Li added.

In company news, shares of Japanese electronics maker Panasonic tumbled 6.95 percent as traders reacted to its first quarter earnings for fiscal 2017, released on Friday. Panasonic's operating profit for the quarter was at 66.9 billion yen ($650 million), compared with 76.6 billion yen registered a year earlier.

Atul Goyal, an equity analyst at Jefferies, said in a note the first quarter earnings were "not bad, given that Panasonic is bearing near-term costs for longer-term growth."

He added Panasonic's upfront investments for future growth, estimated to be around 1 trillion yen, are "bound to increase fixed costs now, without the corresponding revenue growth in near-term."

According to Reuters, the Japanese electronics maker said it would raise up to 400 billion yen in corporate bonds partly because it needs to bring forward its investment in a Tesla Motors battery factory.

Jefferies maintained a "buy" rating on Panasonic.

Asia-Pacific Market Indexes Chart

Elsewhere, oil prices retreated in late Asian trade, with global benchmark Brent crude futures trading down 0.57 percent at $43.28 a barrel, while U.S. crude futures shedding 0.65 percent to $41.33.

In the broader currency market, the dollar traded at 95.643 against a basket of currencies as of 4:28 p.m. HK/SIN, compared with levels above 97.000 in the previous week.

"This past week was a brutal one for the U.S. dollar," wrote Kathy Lien, managing director of foreign exchange strategy at BK Asset Management, in a Friday note. "Friday's disappointing U.S. economic reports also played a big role in the meltdown of the dollar."

Advance read on second-quarter U.S. gross domestic product (GDP) showed a 1.2 percent annualized growth rate, well below expectations for 2.6 percent. Meanwhile, first-quarter GDP was revised lower to 0.8 percent from 1.1 percent.

The Japanese yen traded at 102.40 against the dollar, weaker than an earlier session high of 101.98. On Friday, the yen surged after the Bank of Japan (BOJ) disappointed markets by announcing a weaker-than-expected monetary policy.

BOJ Governor Haruhiko Kuroda said on Friday the Japanese central bank would increase its exchange-traded fund (ETF) purchases, but did not change interest rates or increase the monetary base, as had been widely expected.

Elsewhere, the Australian dollar traded at $0.7591, down from an earlier high of $0.7615. The Aussie will also be in focus this week, ahead of the Reserve Bank of Australia's (RBA) monetary policy meeting on Tuesday.

Vishnu Varathan, senior economist at Mizuho Bank, said the RBA meeting would be a close call.

"Despite underlying inflation printing mildly stronger, markets are split between a rate cut of 25 basis points to 1.5 percent and a policy hold," he said, adding Australian economic data due this week, including trade numbers, building approvals and retail sales, might be "key triggers for the Aussie."

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