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Tokyo - Asian stocks tumbled on Thursday and the yen firmed as a survey painted a grim picture of China's manufacturing sector, heightening uncertainty about the outlook for the region's economic powerhouse.
Equities were already on the back foot after minutes of the Federal Reserve's latest policy meeting and a chorus of US central bank officials showed it remained on track to taper its stimulus.
MSCI's broadest index of Asia-Pacific shares outside Japan extended losses after the China survey, losing 0.9%. Japan's Nikkei stock average ended down 2.2%, marking its biggest daily percentage drop in two weeks.
The preliminary China Purchasing Managers' Index (PMI) from HSBC/Markit for February fell to a seven-month low of 48.3 in February from January's final reading of 49.5, as employment fell at the fastest pace in five years.
While the Lunar New Year holiday likely affected the results, and recent rises in China's exports and bank lending assuaged some anxieties, the latest report followed a series of PMIs in January that showed growth in China's manufacturing and services sectors at multi-month or multi-year lows.
Sustained weakness would put the onus on Chinese policymakers to act.
"The upcoming annual parliamentary meetings in early March will take on bigger importance now," said Linus Yip, a Hong Kong-based strategist at First Shanghai Securities.
"You have to expect Beijing to act if the economy slows down more from here, because they cannot proceed with their reform agenda without maintaining a certain level of growth."
Rekindled China worries, combined with concern about the impact of Fed stimulus withdrawal, pressured emerging Asian currencies, with the South Korean won leading losses.
Sentiment in Tokyo was further darkened by Japan posting a record trade deficit in January, as export growth slowed and imports outpaced shipments as a weak yen boosted import costs.
On Wall Street on Wednesday, the Dow Jones industrial average, the Standard & Poor's 500 Index and the Nasdaq Composite Index all skidded, following release of the Fed minutes.
The minutes showed members on the Fed's policy setting committee emphasized their commitment to trimming the central bank's asset-purchase program in predictable $10-billion steps.
Three Federal Reserve officials on Wednesday said they believe the US economy is gaining traction despite a recent slowdown from severe weather, allowing the central bank to stick to its plan to wind down its massive bond-buying stimulus this year.
The yield on benchmark 10-year Treasury notes fell to 2.715% after the China flash PMI report, compared with Wednesday's U.S. close of 2.734%.
The yen, which often gains in line with investors' aversion to risk, got a leg up against its rivals after the China flash PMI report. The dollar's early gains unravelled and it slipped about 0.4% to ¥101.94, moving further away from a two-week high of ¥102.73 hit on Tuesday.
The euro lost 0.3% to ¥140.16, after it hit a three-week peak above ¥141.00 on Tuesday.
The dollar index gave up about 0.1% to 80.085, moving back toward its Wednesday low of 79.927, which was its weakest since late December.
The euro added about 0.1% to $1.3751, not far from the previous session's high of $1.3773, which was its highest peak since January 2.
In commodities markets, US crude gave up earlier gains and shed about 0.3% to $103.04 a barrel, moving away from a four-month high hit on Wednesday after forecasts for more cold weather next week.
Three-month copper on the London Metal Exchange dropped 0.8% to $7,126 a tonne, moving away from Wednesday's peak of $7 220, its highest since January 27.
"Markets are pretty sensitive to bad news coming out of China, and they probably should be given its role as a major purchaser of copper," said economist James Glenn of National Australia Bank in Melbourne.
Spot gold rose about 0.1% to $1 311.49 an ounce.
