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Asia markets mixed; dollar edges higher while oil reverses morning losses

Asian stocks were mixed Thursday, as traders stayed on the sidelines ahead of a speech from Federal Reserve Chair Janet Yellen that analysts said could provide clues about the central bank's next move.

In Australia, the ASX 200 closed down 19.77 points, or 0.36 percent, at 5,541.90. Japan's Nikkei 225 fell 41.35 points, or 0.25 percent, to 16,555.95, while across the Korean Strait, the Kospi closed near flat at 2,042.92. In Hong Kong, the Hang Seng index climbed 0.13 percent in late afternoon trade.

Chinese mainland markets reversed some of their early losses. The Shanghai composite fell 17.65 points, or 0.57 percent, to 3,068.22, dragged lower by a 2.15 percent decline in the property sector. The Shenzhen composite dropped 11.26 points, or 0.55 percent, to 2,019.01.

As foreign exchange, stock and bond markets all lacked direction, analysts said Yellen's speech on Friday at an annual economic policy symposium in Jackson Hole, Wyoming, was the only big talking point among traders.

"If there were to be shock from Yellen (it hasn't happened yet), it would be that she plays up risk of a rate rise at the 20/21 September Federal Open Market Committee meeting - an event currently ascribed only a 27 percent probability by the U.S. rates markets," Ray Attrill, global co-head of foreign exchange strategy at the National Australia Bank, said in a morning note.

"[The] most we might reasonably expect in this respect is that Yellen will now say that every meeting is now 'live'."

However, Attrill added that the bigger talking point at Jackson Hole should be the effectiveness of already stretched monetary policy in tackling a new downturn.

Stateside, major indexes slipped, with the S&P 500 falling 11.46 points, or 0.52 percent, to 2,175.44. The Dow Jones industrial average dropped 65.82 points, or 0.35 percent, to 18,481.48, while the Nasdaq composite was lower by 42.38 points, or 0.81 percent, to 5,217.69.

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NIKKEI
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ASX 200
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Analysts attributed Thursday's sell-off in Chinese markets to concerns over the amount of spare cash in the banking system as well as fears of an overheating of the property market.

Reuters reported on Thursday, citing banking sources, that the People's Bank of China (PBOC) has urged other banks to spread out the tenors of their loans in a bid to reduce the risks of short-term lending.

A day earlier, the Chinese central bank carried out open market operations by injecting cash through reverse repurchase (repo) agreements. The PBOC, on Wednesday, injected 90 billion yuan ($13.55 billion) into money markets through seven-day reverse bond repurchase agreements and for the first time since February an additional 50 billion yuan through 14-day reverse repos, according to Reuters.

Analysts at Singapore's OCBC Bank said in a Thursday note that the PBOC's move to re-launch the 14-day reverse repo agreements, "reduced the probability of interest rate and reserve requirement ratio cut in the near term."

They added the shift of liquidity supply to longer tenor might reflect the central bank's concerns over too much short term debt in the bond market. "The funding cost from 14-day reverse repo is higher than from 7-day and overnight reverse repo, which may increase costs for leverage," the OCBC analysts added.

Hao Hong, chief strategist and co-head research at BOCOM International, told CNBC by phone that the Chinese central bank might even attempt to further lengthen the borrowing duration and that a 28-day reverse repo agreement might be in the cards for the future.

Elsewhere, property stocks in China sold off notably, with Shenzhen-listed shares of Vanke closing down 1.88 percent, Gemdale off by 4.06 percent, Shanghai Shimao down 0.9 percent and Poly Real Estate off 2.07 percent.

Bloomberg News reported on Thursday, citing sources familiar with the matter, that authorities in Shanghai were planning to hold meetings to discuss ways to cool higher property prices.

Hong told CNBC, "Shanghai is one of the cities where property prices have gone up substantially," and that it would not be surprising to see authorities introduce new policies to tame the housing market in the coming months.

In the currency market, the dollar edged higher against a basket of currencies, last trading at 94.744 as of 3:20 p.m. HK/SIN, compared to levels near 94.646 on Wednesday afternoon Asia time.

"With 40 hours to go before Janet Yellen's testimony at Jackson Hole, the dollar has finally caught a bid," Kathy Lien, managing director for foreign exchange strategy for BK Asset Management, wrote in a late-Wednesday note.

"The greenback traded higher against the euro, Japanese yen, Swiss Franc, Canadian and Australian dollars."

But, Lien added, for the most part, the dollar's performance was uneven.

The Japanese yen traded at 100.42 against the greenback as of 3:21 p.m. HK/SIN on Thursday afternoon, marginally weaker than Wednesday afternoon levels near 100.35.

Major Japanese exporters ended the session mixed. Shares of Toyota closed near flat, Nissan was up 1.06 percent and Sony shares reversed early losses to close flat.

Andia | UIG | Getty Images

In company news, Australian metals and mining company South32 reported earnings from continuing operations fell 76 percent on-year, due to weaker metal prices, in the year that ended June 30, 2016.

Underlying earnings came in at $138 million for the reporting period, compared with $575 million in the same time frame a year earlier. Reuters, however, said the underlying earnings managed to beat analysts' expectations of around $75 million for the company's first full year since it was spun out of BHP Billiton.

Revenue was down 25 percent at $5.81 billion for fiscal 2016, compared with $7.74 billion booked in fiscal 2015. The company said it would pay a final dividend of 1 cent per share.

South32 shares closed down 1.95 percent.

Australian miners took a hit in the afternoon session, after iron ore futures in China sold off sharply on Thursday. The actively-traded January iron ore futures on the Dalian Commodity Exchange dropped 4.39 percent to 435.5 yuan per tonne in the afternoon local time.

Rebar futures on the Shanghai Futures exchange also sold off, with the January futures contract selling off 2.12 percent to 2,541 yuan.

Shares of Rio Tinto tumbled 1.45 percent, Fortescue was down 3.98 percent and BHP Billiton dropped 1.82 percent.

Fortescue shares were under additional pressure after Credit Suisse downgraded the company to an Underperform rating earlier in the week, citing the impact of the expected slowdown in Chinese steel production in October-November.

Volatility in the energy market remained after oil prices tumbled on Wednesday on the back of another unexpected buildup of crude inventory, renewing oversupply concerns.

During Asian hours on Thursday afternoon, U.S. crude futures edged up 0.21 percent to $46.87 a barrel, after falling 2.8 percent overnight, while global benchmark Brent added 0.12 percent to $49.11, after dropping 1.8 percent on Wednesday.

The U.S. Energy Information Administration said crude inventories rose 2.5 million barrels in the previous week, surpassing analyst expectations for a drawdown of 500,000 barrels, Reuters reported.

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