By V. Phani Kumar, MarketWatch
HONG KONG (MarketWatch) ? Japanese shares suffered their worst losses in more than two years on Thursday after data showing an unexpected contraction in Chinese manufacturing activity added to worries the Federal Reserve could downscale its bond purchases.
The Nikkei Stock Average /quotes/zigman/5986735 JP:NIK -7.32% , which had jumped 2% earlier on Thursday, ended the day 7.3% lower in a spectacular turnaround. The drop is the Nikkei?s worst single-day loss since March 15, 2011. The benchmark?s closing level was nearly 1,460 points from the day?s peak.
The slump came after a surge in Japanese government bond yields, which forced the Bank of Japan to offer 2 trillion yen ($19 billion) in funds to calm investor nerves. The central bank announced the fund-supplying operation after 10-year JGB yields soared to their highest level in more than a year, citing ?the unreasonable increase? in volatility.
?Volatility is in full force today, and nowhere more so than Japan,? said Chris Weston, chief market strategist at IG Markets.
?The move in the cash market looks largely driven by the futures market, with Osaka futures getting smashed. What?s more, there were monster volumes... Perhaps this is a function of the higher yields and it?s something that needs to be addressed for ?Abenomics? to really work,? he said.
Abenomics refers to the economic policies under the administration of Prime Minister Shinzo Abe.
The massive reversal for Tokyo stocks came in the afternoon trading session, after preliminary results of HSBC?s China manufacturing Purchasing Managers? Index for May dropped to a seven-month low of 49.6.
The volatility also followed choppy moves in Treasurys overnight, and a sharp pullback for stocks on Wall Street. Those moves came in the wake of Fed Chairman Ben Bernanke?s remarks Wednesday that the central bank could begin to wind down its bond purchases in the ?next few meetings.? Similar signals also emerged from the Fed?s last policy-meeting minutes.
Other regional markets also hit
Also taking big losses in Asia, Hong Kong?s Hang Seng Index /quotes/zigman/2622475 HK:HSI -2.39% tumbled 2.5% in afternoon trading, while Australia?s S&P/ASX 200 /quotes/zigman/1653884 AU:XJO -1.99% ?skidded 2%.
Taiwan?s Taiex /quotes/zigman/1652118 KR:SEU -1.24% lost 1.9%, and South Korea?s Kospi /quotes/zigman/1652118 KR:SEU -1.24% ?fell 1.2% as the China PMI reading ? which was below the 50-point threshold that separates improvement from deterioration in factory conditions, and also lower than the expected result of 50.4 ? added to fears about growth momentum in the world?s second-largest economy.
?A sequential slowdown is likely in the middle of [the second quarter], casting downside risk to China?s fragile growth recovery,? said HSBC chief China economist Hongbin Qu.
Singapore?s Straits Times Index /quotes/zigman/1709939 SG:STI -1.97% ?lost 2%, even though the local economy unexpectedly expanded 1.8% on an annualized basis in the first quarter from the preceding three months.
The Shanghai Composite Index /quotes/zigman/1859015 CN:000001 -1.12% ?was itself off 1.1% in afternoon trading, weighed down amid the regional losses. The benchmark had briefly edged higher earlier in the day, recovering from losses posted before the HSBC PMI release.
Kim Eng Securities head of sales trading Andrew Sullivan said he doubted the data would lead any significant downgrades to estimates on Chinese economic growth, as a number of brokerages had already cut their outlook. ?But people will be watching for any government announcements of stimulus spending, which would be taken as positive,? he said.
The plunge in Japanese shares, combined with fears that the Chinese economy was losing momentum, also hurt U.S. stock futures, risk currencies and commodities.
/quotes/zigman/5986735
JP : Nikkei Idx
Volume: 0.00
May 23, 2013 3:00p
/quotes/zigman/2622475 HK : HangSeng Ind
Volume: 0.00
May 23, 2013 3:01p
/quotes/zigman/1653884 AU : Australia: Sydney
Volume: 0.00
May 23, 2013 4:10p
/quotes/zigman/1652118 KR : S. Korea: KRX
Volume: 338.16M
May 23, 2013 3:02p
/quotes/zigman/1652118 KR : S. Korea: KRX
Volume: 338.16M
May 23, 2013 3:02p
/quotes/zigman/1709939 SG : Singapore: SGX
Volume: 0.00
May 23, 2013 3:16p
/quotes/zigman/1859015 CN : China: Shanghai
Volume: 124.02M
May 23, 2013 3:00p
Source: http://feeds.marketwatch.com/~r/marketwatch/bulletins/~3/zYKObwjFl74/bulletinredir.asp
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