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Tokyo - Asian shares fell on Monday as lacklustre earnings from leading US companies and a sharp drop in Japan's exports, a key driver of the world's third-biggest economy, dented risk appetites and prompted investors to take profits on recent gains.
US stocks had their worst day since late June on Friday, following disappointing results from Dow components General Electric and McDonald's, both barometers of the overall economy's health.
The MSCI index of Asia-Pacific shares outside Japan fell 0.6%, led by a 0.8% decline in South Korean shares. Australian shares followed with a drop of 0.7% on worries about metals demand in China, Europe's debt woes and weak US earnings. Hong Kong shares, which touched a seven-month high last week, held steady.
Analysts said the drop in US equities provided a good excuse for profit-taking in Asian stock markets, many of which had rallied to multi-month highs recently on new global central bank easing and the European Central Bank's plan to buy bonds of struggling eurozone countries that ask for aid.
"Profit-taking is overshadowing buying because any forward momentum has been exhausted," Oh Tae-dong, an analyst at Taurus Securities in Seoul wrote in a note to investors. He said he expects the Korea Composite Stock Price Index to hover around current levels for the time being.
The Korea's index was still up around 10% from lows hit in late July. The index hit a 5-month high in September.
Australian shares scaled a 15-month high last week and the benchmark index was up nearly 6% since a low on September 5.
"After a rally of several weeks, buying tends to run out of steam while profit takers become more trigger happy," said CMC markets analyst Ric Spooner.
Japan's Nikkei average slipped 0.5% from Friday's three-week closing high.
The dollar was steady around ¥79.28 but capped at its 200-day moving average around ¥79.40 after reaching a two-month high of ¥79.47 on Thursday.
Data on Monday showed Japan's exports in September tumbled at their sharpest on-year pace since the February 2011 earthquake, while manufacturers' mood hit its lowest since early 2010.
The reports reinforced concerns that Japan may slide back into recession as sales to China and Europe sag amid the global slowdown and domestic demand, led by rebuilding from last year's disaster, loses momentum.
While global growth worries have raised concerns about weak demand from China, a Reuters poll showed that the world's second-largest economy could stage a tepid economic rebound in the fourth quarter on higher public infrastructure spending, though growth will remain lethargic through 2013.
US crude erased earlier losses to inch up 0.2% to $90.20 a barrel and Brent also edged up 0.2% to $110.32.
Weaker equities weighed on Asian credit markets, pushing out the spread on the iTraxx Asia ex-Japan investment-grade index wider by 4 basis points.
Mixed signals in Europe
The euro was resilient despite mixed signals from the eurozone over the progress of its three-year debt crisis, trading up 0.3% at $1.3046.
European shares snapped a four-day winning streak on Friday after disagreements among European Union leaders over how to help the region's debt-ridden banks hit financial stocks.
German Chancellor Angela Merkel raised new hurdles on Friday to using the eurozone's rescue fund to inject capital directly into ailing banks from next year, limiting the impact of a key agreement by European Union leaders on Thursday to establish a single banking supervisor from 2013.
Spain and Greece were still expected to get aid, with eurozone officials seeing a November 12 finance ministers' meeting as the next potential date for such decisions. Improving investor confidence was evident in government bond yields for highly-indebted Italy and Spain, which tumbled on Friday to multi-month lows after successful debt sales in both countries.
Some indicators were more cautious as investor focus turned to the corporate earnings seasons now under way in the United States.
The CBOE Volatility index, a gauge of expected volatility in the S&P, jumped 13.5% to close at 17.06 on Friday. It hit a five-month high earlier on Friday.
Spot gold recovered from a fresh six-week low of $1 713.39 an ounce hit earlier, and last traded up 0.2% at $1 723.09 on bargain hunting.
Hedge funds and other big speculators have cut their bullish bets on US commodities to the lowest levels since the end of August, with funds mostly bailing out of gold after its repeated failure to breach the $1 800-an-ounce mark.
