By V. Phani Kumar, Shri Navaratnam and Kirsty Green
HONG KONG (MarketWatch) -- Major Asian markets ended mostly lower Monday, with shares in China and Hong Kong weighed down by lingering worries over fresh monetary tightening measures from Beijing.
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The rate-setting meetings at the U.S. Federal Reserve and the Bank of Japan later this week remained in focus as investors awaited monetary-policy cues from the two major central banks.
"Stock market sensitivity to anything to do with possible liquidity removal (or enhancement) is at extreme levels," said Uwe Parpart, chief Asia strategist at Cantor Fitzgerald. "An FOMC [Federal Open Market Committee] change in wording could produce a market tailspin. A combination of "no change" at the Fed and added easing at the BOJ could extend and accelerate last week's tepid rally," he added.
Japan's Nikkei 225 Stock average ended flat after seesawing between gains and losses, China's Shanghai Composite dropped 1.2% and Hong Kong's Hang Seng Index gave up 0.6%.
Australia's S&P/ASX 200 dropped 0.7%, South Korea's Kospi lost 0.8% and Taiwan's Taiex shed 1.5%, while India's Sensex was flat in afternoon trading. Dow Jones Industrial Average /zigman2/quotes/210598065/realtime DJIA +1.51% futures were down 23 points in screen trading.
Japanese stocks, which posted strong gains last week on the back of foreign buying and hopes of monetary easing by the BOJ, were supported during the volatile session as the yen weakened against the U.S. dollar, lifting exporters. Canon Inc. /zigman2/quotes/210242912/composite CAJ +4.80% /zigman2/quotes/207639533/delayed JP:7751 -1.35% climbed 3% and Mazda Motor Corp. /zigman2/quotes/204777714/delayed JP:7261 +0.97% /zigman2/quotes/206326885/delayed MZDAY +1.23% gained 2.6%, while Elpida Memory Inc. rose 1.2%.
Fuji Electric Holdings /zigman2/quotes/205163888/delayed JP:6504 +0.44% /zigman2/quotes/208318274/delayed FELTY -0.19% was in the spotlight, surging 8.9% in strong volume, as a Nikkei newspaper report that China plans to spend as much as 4 trillion yuan ($587 billion) by 2020 to build smart grids, creating business opportunities for Japanese companies specializing in transmission technology.
JVC Kenwood Holdings /zigman2/quotes/201802771/delayed JP:6632 0.00% slumped 14% after saying on Friday it has restated some of its past earnings due to an investigation into inappropriate accounting methods at its Victor Co. of Japan unit, and now expects a deeper loss for the current fiscal year. JVC Kenwood, a holding company established in October 2008 through a merger between Victor and Kenwood, said it expects a net loss of 28.5 billion yen ($315 million) for this fiscal year ending March, compared with its earlier forecast of a 20 billion yen loss.
Several shipping stocks also advanced, buoyed by a recent increase in marine freight rates because of an uptick in demand for vessels to carry commodities. Mitsui O.S.K. Lines /zigman2/quotes/204152844/delayed JP:9104 +1.00% /zigman2/quotes/207984028/delayed MSLOY +17.77% gained 2.1% and Kawasaki Kisen Kaisha /zigman2/quotes/201857679/delayed JP:9107 -0.56% gained 2.3% in Tokyo, STX Pan Ocean Co. rose 0.8% and Korea Line Corp. gained 0.2% in Seoul and Shipping Corp. of India rose 1% in Mumbai trading.
But Hong Kong and Shanghai-listed shares were broadly lower amid lingering worries over potential monetary tightening by Beijing.
"Just because a rate hike didn't happen over the weekend doesn't mean it's off the table. The uncertainty about its timing is going to pressure sentiment in the coming weeks," said Ci Weixiang from Guotai Junan Securities.
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Beijing has raised banks' reserve requirement ratios -- the amount of cash they have to set aside as reserves -- twice this year as part of efforts to curb lending growth after an explosive growth in credit in 2009.
Shares of Shanghai Pudong Development Bank /zigman2/quotes/204296742/delayed CN:600000 -0.32% dropped 1.7% and Beijing Huaye Realestate Co. shed 3.4% in Shanghai, with Angang Steel Co. /zigman2/quotes/207174324/delayed CN:000898 +0.77% dropping 4.2% and property major China Vanke Co. /zigman2/quotes/205643772/delayed CN:000002 -0.39% losing 1.3% in Shenzhen.
Coal producer China Shenhua Energy /zigman2/quotes/202621923/delayed CN:601088 -0.42% fell 2.2% in Shanghai and 3.9% in Hong Kong on lower-than-expected full year results. Offshore oil explorer Cnooc /zigman2/quotes/204964401/composite CEO +1.22% /zigman2/quotes/203421416/delayed HK:883 +0.54% shed 0.5%, reversing early gains in a downbeat Hong Kong market, despite news of its $3.1 billion purchase of a 50% stake in Argentina's Bridas Energy.
Financial stocks weighed down the South Korean market on profit-taking after last week's gains. KB Financial Group /zigman2/quotes/200043823/composite KB +0.18% gave up 1.7% and Korea Exchange Bank sank 2.8%.
"Investors are focusing on short-term profit taking (due to) a lack of confidence about the index's direction in the near term," said Kim Seong-bong at Samsung Securities in Seoul.
Asiana Airlines tacked on 3.2%, however, after the Korea Development Bank denied a local media report on Friday that KDB planned to push for capital reduction at Asiana in return for an injection of 120 billion won ($106 million) in fresh funds.
Arrow Energy rose 1% after a report in Monday's Australian Financial review said the company is set to reject the 3.26 billion Australian dollar ($2.97 billion) takeover bid from Shell and PetroChina.
Elsewhere in the region, Singapore's Straits Times Index and Thailand's SET Index were flat, while Indonesia's JSX gained 0.3% in afternoon trading. Earlier in the day, Philippine shares finished 0.1% higher, while New Zealand's NZX 50 rose 0.2%.
In foreign exchange markets, the euro was buying $1.3737 from $1.3762 late in New York Friday, in addition to 124.53 yen, from 124.57 yen. The dollar strengthened to 90.61 yen, compared with 90.50 yen.
Traders said investors will be watching the Fed's policy statement Tuesday for any clues on when it will move from its ultra-easy policy. The central bank is widely expected to leave rates unchanged near zero, and retain its commitment to leave rates on hold for a while.
Bank of New Zealand currency strategist Mike Jones said the Fed was likely to upgrade its assessment of the U.S. economy, and this may provide some mild support to the U.S. dollar despite the likelihood of rates staying low for some time. Jones also said the outcome of the Bank of Japan's meeting will be "more exciting than usual." "The yen has suffered of late from market speculation the BOJ will increase its asset purchase scheme to stave off deflationary pressures. If the BOJ fails to deliver, expect a bounce in the yen," he said.
The yield on the benchmark 10-year Japanese government bond was flat at 1.340% on investor apprehension ahead of the BOJ's two-day policy meeting starting Tuesday. The key June JGB futures contract was up 0.07 at 138.92 points.
Spot gold was at $1,104.60 per troy ounce, up $3.10 from the New York close Friday. April Nymex crude-oil futures were down six cents at $81.18 per barrel on Globex.