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Hong Kong - Asian markets tumbled Monday, extending last week's falls after the US Federal Reserve indicated it could reel in its stimulus later in the year, while Hong Kong and Shanghai were stung by a liquidity crisis in China.
However, the Fed's announcement that it could soon start winding down its bond-buying continued to provide support to the dollar, pushing it back towards ¥100.
Shanghai slumped 5.30%, or 109.86 points, to 1 963.24 - below the psychological 2 000-point level analysts had pegged as support. Hong Kong was down 2.40% in the afternoon.
Tokyo closed down 1.26%, or 167.35 points at 13 062.78. The losses reversed a 1.42% gain at the start of Monday's session that had been stoked by a solid victory for Prime Minister Shinzo Abe's ruling coalition in elections ahead of national upper house polls next month.
In Sydney, where a number of listed firms rely heavily on trade with China, the market closed down 1.47%, or 69.7 points, at 4 669.1, while Seoul skidded 1.31%, or 23.82 points, to 1 799.01.
Chinese investors have been sent running by a liquidity crisis in the banking system, which has caused lenders to put the brakes on loans.
The rates banks charge to borrow from each other has surged in the past two weeks but the People's Bank of China has refrained from injecting more cash - owing to fears about a growth of bad debt - which has in turn weighed on the economy.
Hopes that Beijing would step in to provide money were dashed at the weekend when a commentary by the official Xinhua news agency said there was no shortage of funds in the financial system.
It blamed speculation and non-bank forms of lending, often called "shadow finance", for the problem.
"It's not that there's no money, it's that the money is not in the right places," the commentary said.
Wu Bangdong, analyst at Changjiang Securities, said: "A lack of policy stance from the central bank during the cash crunch is the main reason that stock markets keep falling, so investors are waiting eagerly for any direction cues."
Global markets have been sent into a downward spiral since the Fed announcement last week that the economy looked in good enough shape for it to start rowing back on its $85bn-a-month bond-buying scheme.
While the move shows the US economy is gaining strength, dealers fear it will mean there is less cash in the financial system to invest.
Tokyo's Nikkei has been supported however by a strengthening of the dollar against the yen. But the index was negative Monday despite the dollar edging higher and Sunday's poll victory for the government.
The ruling Liberal Democratic Party (LDP) and New Komeito secured solid victories in the Tokyo metropolitan assembly election.
"Voters reaffirmed confidence in 'Abenomics' and the ruling coalition government, which was symbolically important given the recent volatility seen in equities prices," Hirochi Nishi, general manager of equities at SMBC Nikko Securities, told Dow Jones Newswires.
Abenomics refers to the big-spending policy put in place by Prime Minister Shinzo Abe that has been credited with a rallying stock market, weaker yen and a pick-up in economic growth.
"Leading up to the upper house elections in parliament in July, this should reassure investors that the course of present government economic policy will be maintained."
The dollar bought ¥98.46 on Monday in Tokyo, compared with ¥97.87 in New York late Friday. The euro sat at ¥128.80 and $1.3081, against ¥128.45 and $1.3122.
In New York on Friday the Dow rose 0.28%, the S&P 500 added 0.27% and the Nasdaq fell 0.22%.
Oil prices slipped. New York's main contract, West Texas Intermediate light sweet crude for delivery in August, was down 69 cents at $93.00 a barrel and Brent North Sea crude for August delivery shed 84 cents to $100.07.
Gold fetched $1 284.17 per ounce by 09:20, from $1 293.33 late Friday.
In other markets:
-- Taipei ended down 0.45%, or 35.28 points, at 7758.03.
-- Wellington ended flat, edging up 0.98 points to 4 364.05.
Goodman Property was up 1.5% at NZ$1.04 and Precinct Properties added 0.5% to NZ$1.04. Sky Television fell 2.4% to NZ$4.96
