GLOBAL MARKETS-Weak China PMI exacerbates bearish sentiment for shares, euro

TOKYO: Asian shares and the euro extended losses on Friday, with Japan's Nikkei poised to log its longest losing streak in two decades, as weak Chinese factory data highlighted concerns that the euro zone debt crisis will further undermine global economic growth.

The data comes amid escalating worries about Spain's banking system and the fate of Greece with the euro bloc, which are spurring a flight to safe-haven assets.

MSCI's broadest index of Asia-Pacific shares outside Japan fell as much as 1.1 percent before paring some losses to stand down 0.3 percent. Shares in Australia, which is highly dependant on demand from China, also slipped as much as 1.1 percent.

"China's data only added to the negative tone in the market as it showed the country needs to prop up its weakening domestic demand, which means demand for commodities will remain sluggish until proper measures are taken," said Naohiro Niimura, a partner at Tokyo-based research and consulting firm Market Risk Advisory Co.

China's official purchasing managers' index (PMI) fell to 50.4 in May, down from April's 13-month high of 53.3 and below the 52.2 forecast, weakness that was confirmed by a separate HSBC's PMI survey which showed the manufacturing sector contracting for a seventh month in a row.

The euro hit a fresh 23-month low against the dollar at $1.2324 and the Australian dollar fell to an eight-month low around $0.9650.

Du Ying, vice chairman of the National Development and Reform Commission, China's most powerful economic planner, said on Friday the country aims to boost domestic demand to stimulate economic growth.

But Market Risk's Niimura said he believed China may wait until the situation in Europe is clearer as a slew of events this month will likely affect how Europe deals with the latest phase of its debt crisis. These include a June 17 election in Greece, a European summit and a G20 summit.

Japan's Nikkei eased 0.7 percent, set for its worst weekly losing streak in 20 years, undermined by a yen strengthening on Europe's debt woes.

"The problem is that although Japanese stocks are technically cheap according to past barometers, the market has always moved more on foreign factors than domestic ones," said Yutaka Miura, senior technical analyst at Mizuho Securities.


The China data comes on the heels of reports showing U.S. private employers created fewer jobs than expected and a rise in new unemployment benefit claims, putting investors on edge about the pace of the U.S. recovery ahead of nonfarm payroll figures due later on Friday.

Economists expected U.S. nonfarm payrolls to rise by 150,000 jobs in May, up from 115,000 in April, while the unemployment rate likely held steady at 8.1 percent.

U.S. crude fell 0.3 percent to $86.30 a barrel after marking its biggest monthly decline since December 2008 in May. Brent crude futures eased 0.1 percent to $101.80.

"I don't think Friday's (nonfarm payroll) numbers are going to be any better. It's been a dismal week so far, and we haven't hit bottom," said Jim Ritterbusch, president at Ritterbusch & Associates.

"We're going to see more downside pressure on prices, with Brent likely to drop below $100 and WTI expected to dip further to around $83," he said.

The flight to safety lifted the dollar index, measured against a basket of major currencies, above 83.3 on Friday, its highest since August 2010 .

"Given the heightened uncertainty about the outlook for Europe and the global economy, we recommend staying defensive in FX markets," Barclays Capital analysts said in a note, suggesting investors should position for a weaker euro.

The euro was only few pips higher than an 11-1/2-year low of 96.48 yen on Thursday. The yen, also seen as a safe haven, was at 78.45 yen, off a 3-1/2 month high of 78.21 yen touched the day before.


The European Central Bank stepped up pressure on Thursday for a joint guarantee on bank deposits across the euro zone, saying Europe needed new tools to fight bank runs as the bloc's debt crisis drives investors to flee risk.

The European Commission's top economic official, Olli Rehn, warned the single currency area could disintegrate without stronger crisis-fighting mechanisms and tough fiscal discipline.

The cost of insuring against a Spanish default hit 600 basis points for the first time on Thursday and the country's funding costs remained elevated near levels seen unsustainable for the economy.

Asian credit markets weakened, with the spread on the iTraxx Asia ex-Japan investment-grade index widening by 3 basis points. - Reuters

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