Asian shares drop on US rate hike hint

Hong Kong - Asian markets fell on Thursday after the head of the US Federal Reserve hinted that the central bank could raise interest rates sooner than expected.

The comments by Janet Yellen followed an expected third successive cut in the Fed's quantitative easing (QE) stimulus programme, and took markets by surprise, boosting the dollar and sending Wall Street tumbling.

Tokyo dropped 1.65% to 14 224.23 points, Sydney gave up 1.15% to 5 294 points and Seoul fell 0.94% to close at 1 919.52 points.

Shanghai closed 1.40% lower to 1 993.48 points, while Hong Kong shed 1.79% to 21 182.16 points.

Emerging markets were also hit as higher borrowing costs could see foreigners repatriating their money back to the United States. QE has been credited with fuelling a boom in developing nations as trader’s pumped cheaper cash into them in search of better returns on their investments.

Taipei closed 1.06% lower at 8 597.33 points, while Manila was down 0.70%, giving up 45.14 points to end at 6 417.35.

In the afternoon Jakarta had lost 2.40% and Bangkok was 0.82% off.

However, Wellington bucked the trend and rose 0.11% to close at 5 160.39 points after data showed New Zealand's economy picked up in 2013, helped by strong manufacturing.

The Fed on Wednesday lopped a further $10bn a month off its bond-buying scheme - following similar moves at its past two meetings - saying the economy was picking up and a recent spate of soft data was caused by severe winter weather.

It also said it would scrap its target of 6.5% unemployment and 2.5% inflation before considering an interest rate increase from the current record lows.

While that was expected, investors were rattled when Yellen, the bank's new chair, said at a news conference that the time frame for a rate rise could be "on the order of around six months" after the stimulus ends.

With the present rate of reduction likely to see QE tapered off by the end of the year, which means rates could go up in the first half of 2015.

Michael James, managing director of equity trading at Wedbush Securities, said the time frame suggested a rise in rates would come sooner than the market had been expecting.

The remarks sent US stocks lower - the Dow fell 0.70%, the S&P 500 lost 0.61% and the Nasdaq shed 0.59% - while the dollar rallied.

"Yellen can be seen as not being so dovish as expected," said Hiromishi Shirakawa, research analyst at Credit Suisse. "We should pay attention to the possibility that the era of a firm dollar and weak stocks will start," he said in a note.

The dollar jumped to ¥102.32 in New York from ¥101.51 in Tokyo earlier on Wednesday. On Thursday afternoon in Asia, the US unit was trading at ¥102.38.

The euro was sitting at $1.3833 compared with $1.3827 in New York and $1.3920 on Wednesday in Tokyo.

The European single currency fetched ¥141.63 against ¥141.53.