By V. Phani Kumar And Steve Goldstein
Chinese shares fell as a central-bank move to tighten liquidity in the money markets raised fears that further tightening measures could come sooner than expected.
China's Shanghai Composite lost 1.9% to finish at 3192.78. The People's Bank of China sold 60 billion yuan ($8.78 billion) worth of three-month bills at 1.3684%, increasing the yield on such bills for the first time since August, when the rate was moved to 1.3328%. The Shenzhen Composite index also dropped 1.9%, to 1179.99.
"The interbank money market liquidity is being tightened, which is good. It also suggests [the PBOC] is preparing for more actions over the next few months," said Daiwa Institute of Research economist Kevin Lai . The timing of interest-rate increases will also be "sooner than the market believes," Mr. Lai said, adding that he expected a rate increase and an increase in bank reserve requirements by the end of the first quarter.
Banking, steel and automobile stocks paced China's decline. Industrial & Commercial Bank of China /zigman2/quotes/201401473/delayed HK:1398 -0.22% dropped 2.4%, SAIC Motor shed 4.4% and Baoshan Iron & Steel shrank 4.9%.
Most other Asian stock markets also fell.
In TOKYO , the Nikkei Stock Average of 225 companies weaved in and out of positive territory before ending down 0.5% at 10681.66. Shares of Japan Airlines tumbled 9.3% after the Nikkei newspaper reported that the government-backed entity overseeing the carrier's rehabilitation looked to cut the company's debt by 730 billion yen ($7.92 billion) via debt waivers and reductions in pension and bond obligations.
Stockholders might have to shoulder at least a portion of the burden, while banks could be asked to forgive some debt.
In HONG KONG , the Hang Seng Index shed 0.7% to 22269.45. Stocks retreated after a string of recent advances. ICBC fell 1.2% and Denway Motors shed 3.4%. Foxconn International Holdings /zigman2/quotes/205017351/delayed HK:2038 0.00% dropped 4.9% after rising 31% over the past seven sessions.
In SYDNEY , Australia's S&P/ASX 200 lost 0.5% to 4899.40. Consumer-related stocks rose after stronger-than-expected November retail sales raised hopes for solid December sales. Harvey Norman climbed 3.7%.
Meanwhile, in Europe, telecommunications firms and German retailers helped cap stock-market movement as the Bank of England kept interest rates at historically low levels. The pan-European Stoxx 600 index was up less than a point at 258.04.
Media stocks were active after Goldman Sachs increased earnings per share estimates for many companies. JCDecaux /zigman2/quotes/210449424/delayed FR:DEC -0.05% gained 9.1% and Havas rose 6.2% as both French advertising firms were upped to "buy" from "neutral," while magazine and book publisher Lagardère /zigman2/quotes/206737784/delayed FR:MMB -0.16% dropped 2.2% after being downgraded to "sell" from "neutral."
In LONDON , the FTSE 100 index lost 0.1% to 5526.72. J Sainsbury /zigman2/quotes/206038250/delayed UK:SBRY +0.26% rose 3.2% after the supermarket chain said third-quarter comparable sales, excluding fuel and value-added tax, rose 4.2%, beating the 3.5% increase expected by analysts. Persimmon /zigman2/quotes/206444744/delayed UK:PSN +1.23% rose 6.6% after saying forward sales are running about 40% ahead of last year.
In FRANKFURT , the DAX fell 0.3% to 6019.36. Praktiker fell 8.3% as the home improvement retailer said fourth-quarter comparable-store sales fell 11.4% after offering fewer discounts.
In PARIS , the CAC-40 index rose 0.2% to 4024.80. France Telecom fell 1.3%.
Elsewhere, Aer Lingus fell 2.3% as Ryanair Holdings said it wasn't planning a third bid to buy its fellow Irish carrier. Ryanair separately reported a 12% increase in December traffic and a plan to return cash to investors by March 2013. It's shares fell 2%.
Sugar producer Tate & Lyle /zigman2/quotes/205109332/delayed UK:TATE +0.93% slumped 6.4% after it was cut to "neutral" from "outperform" by Credit Suisse.