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Asia markets lose ground; South Korean shares under pressure amid tensions with China

Asia markets lost ground Friday, following an overnight decline in U.S. equities, as the market priced in increasing chances the Federal Reserve might hike interest rates later this month.

Jung Yeon-Je | AFP | Getty Images

Vishnu Varathan from Mizuho Bank said there was slight nervousness around markets that the Fed may get ahead of the economic optimism currently seen if U.S. President Donald Trump's policy plans stumble on details or legislative hurdles.

Comments from several Fed members in recent weeks have heightened the momentum for a possible interest rate hike in March.

"Ahead of (remarks from) key Fed speakers, notably Yellen, Vice-Chair Fischer, Evans and Lacker, cautious profit lock in for equities and upside bias in yields trump all other trades," said Varathan.

In Japan, the Nikkei 225 closed down 95.63 points, or 0.49 percent, at 19,469.17. Banking stocks struggled, with Mitsubishi UFJ slipping 0.59 percent and Mizuho lower by 0.33 percent.

Exporters were mixed, with some losing ground as the yen strengthened against the dollar midday: Toyota shares fell 0.23 percent, Mitsubishi Electric was down 1.01 percent, while Sony rose 0.53 percent.

The yen traded at 114.13 to the dollar at 3:11 p.m. HK/SIN, strengthening from an earlier low of 114.47. But the currency was still relatively weaker, having slipped from levels near 111.60 earlier this week.

Across the Korean Strait, the Kospi fell 23.90 points, or 1.14 percent, to 2,078.75 as stocks likely struggled against reports of tension between China and South Korea.

Retailers saw sharp declines, with Lotte Shopping closing down 0.93 percent, Shinsegae off by 4.92 percent and Hyundai Department Store down 3.37 percent.

Reuters reported Thursday a cyber attack using a Chinese internet protocol addresses crashed the website of Lotte Duty Free. The attacked followed affiliate Lotte International's approval for a land swap to allow the U.S. Terminal High Altitude Area Defence (THAAD) system on what was once its property in response to the North Korean missile threat, said Reuters.

Local media reports also said China had ordered tour operators to stop selling trips to South Korea as a result of the THAAD deployment, said Reuters. Shares of Hyundai Motor tumbled 4.38 percent on the back of the news.

In Hong Kong, the Hang Seng index was down 0.66 percent in late-afternoon trade. Chinese mainland shares closed mixed, with the Shanghai composite down 10.84 points, or 0.34 percent, at 3,219.18, and the Shenzhen composite ended up 4.18 points, or 0.21 percent, at 2,001.90.

Australia's ASX 200 fell 46.98 points, or 0.81 percent, to 5,729.60, with most sectors finishing lower. The heavily-weighted financial sector closed down 0.71 percent as major banks lost ground. ANZ shares were down 0.57 percent, Commonwealth Bank of Australia was off by 0.79 percent, Westpac was lower by 0.96 percent and the National Australia Bank fell 0.93 percent.

Symbol
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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In the currency market, the dollar index slipped to 102.03 at 3:17 p.m. HK/SIN, from an earlier high of 102.17. The index had climbed from levels below 101.00 earlier in the week, on the back of rising expectations for the U.S. Federal Reserve to raise interest rates in March.

The latest to indicate a March rate hike is likely was Fed Governor Jerome Powell. In an interview Thursday with CNBC, Powell indicated that conditions relating to inflation and employment are close enough to the Fed's goal that an increase merits serious consideration.

Among other currencies, the Australian dollar traded at $0.7562, the euro at $1.0525 and the pound fetched $1.2267.

The on-shore yuan traded weaker to the dollar at 6.8976, while the off-shore yuan fetched 6.8932. The People's Bank of China set the yuan mid-point fix at 6.8896 to the dollar Friday.

Patrick Bennett, a foreign exchange strategist at CIBC, attributed the yuan's weakness to dollar strength after the Chinese currency didn't move as much as other currencies against the greenback earlier in the week and the market's supply and demand of yuan appeared balanced.

"As long as the move is not swift or disorderly, I expect it to weaken further from here," he said.

The stronger dollar pushed gold prices lower, from levels above $1,260 an ounce near the start of the week to $1,231.06 at 3:18 p.m. HK/SIN Friday.

Australian gold miners saw steep declines Friday, with Newcrest down 2.99 percent, Evolution Mining down 5.09 percent and Alacer Gold off by 5.16 percent.

Oil climbed by mid-day Friday as the dollar retreated slightly. U.S. crude was up 0.29 percent by $52.76 at 3:20 p.m. HK/SIN and global benchmark Brent added 0.24 percent to $55.21.

— CNBC's Jeff Cox contributed to this report.