Asian shares dropped sharply on Friday after a survey of Chinese manufacturing activity was weaker than expected, while U.S. jobs data underpinned the dollar as it bolstered bets that the U.S. Federal Reserve is on track to hike interest rates later this year. The flash Caixin/Markit China Manufacturing Purchasing Managers’ Index (PMI) dropped to 48.2, below economists’ estimate for a reading of 49.7 and the lowest reading since April last year. It was the fifth straight month below 50, the level which separates contraction from expansion. MSCI’s broadest index of Asia-Pacific shares outside Japan .MIAPJ0000PUS was down about 0.8 percent, on course for a weekly loss of more than 2 percent. Japan’s Nikkei stock index .N225 dipped about 0.6 percent, even though a similar survey for Japan showed improvement. The flash Markit/Nikkei Japan Manufacturing Purchasing Managers Index (PMI) rose to a seasonally adjusted 51.4 in July from a final 50.1 in June, suggesting economic growth is picking up after an expected slump in the second quarter. “Japan’s PMI was good, but Japanese stocks are reacting more to China’s,” said Ayako Sera, senior market economist at Sumitomo Mitsui Trust Bank in Tokyo. “Everyone is concerned about the state of China’s economy, and this reaction shows that market is very sensitive to information like this,” she said. The survey reinforced expectations of more easing ahead from Beijing. China looks set to further reduce interest rates and the amount of cash its banks must hold as reserves to try to keep its economy growing at 7 percent this year, which would be the slowest pace in a quarter of a century, a Reuters poll showed on Thursday. On Wall Street overnight, downbeat corporate earnings reports sent U.S. equities lower, with all three major U.S. indexes logging solid losses. Better-than-expected U.S. jobless claims gave U.S. Treasury yields a boost, adding to the dollar’s appeal, though yields came back down as risk appetite evaporated in the face of Wall Street’s losses and shrunk further after the China survey. The benchmark U.S. 10-year yield US10YT=RR was at 2.274 percent in Asian trading, down from its U.S. close of 2.278 percent on Thursday. The weekly employment data showed that initial jobless claims declined 26,000 to a seasonally-adjusted 255,000, the lowest since November 1973. Upbeat employment and housing data this week have backed the view that the U.S. central bank will raise interest rates, perhaps as early as September, and that has underpinned the greenback. The euro was last down about 0.1 percent on the day at $ 1.0991 EUR=, after gaining in the previous session, as the Greek parliament approved a second set of reforms required to start negotiations with lenders in a bid to avert bankruptcy. The dollar was steady on the day at 123.93 yen JPY=. The Japanese currency was briefly on the defensive on Thursday after the International Monetary Fund warned Japan to avoid over-reliance on a weak currency to reflate its economy. The Australian dollar AUD=D4 fell to its lowest in six years on Friday after the China manufacturing survey. It was last buying $ 0.7301, down 0.7 percent on the day, after falling as low as $ 0.7295. Spot gold XAU= skidded about 1 percent on the day to $ 1,079.24 an ounce, on track for a weekly loss of nearly 5 percent, after marking its deepest one-day loss in nearly two years on Monday. Crude oil futures rebounded from multi-month lows recorded overnight, with U.S. crude CLc1 up about 0.7 percent at $ 48.79 a barrel, after marking its lowest settlement since March 31. Brent LCOc1 added 0.3 percent to $ 55.46, after it settled at its lowest level since April 2 on Thursday, amid persistent fears about a global supply glut. (Editing by Clarence Fernandez and Richard Borsuk)
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