Tokyo - Asian shares fell on Wednesday as soft Chinese manufacturing data further undermined investor confidence and as hopes faded for bold stimulus action this week by the US Federal Reserve and the European Central Bank to underpin faltering economies.
European stocks were set to open lower, and a 0.1% drop in US stock futures signalled a sluggish Wall Street start. Financial spreadbetters called the main indexes in London, Paris and Frankfurt to open down 0.1%.
China's official factory purchasing managers' index fell to an eight-month low of 50.1 in July from 50.2 in June, suggesting the sector is barely growing. Analysts had expected it to edge up to 50.3.
The data underscored how the world's second-biggest economy was losing momentum, and followed signs of decelerating Asian growth, with major Asian exporters Japan, South Korea and Taiwan all reporting worsening economic stress on Tuesday.
"It is clear that the manufacturing sector is doing very poorly, and requires policy support," said Dariusz Kowalczyk, senior economist & strategist, Asia ex-Japan at Credit Agricole CIB.
Markets trimmed some of the losses after a slightly better showing in a private HSBC Purchasing Managers' Index (PMI) for China, which rose to a five-month high of a seasonally adjusted 49.3 in July. But it marked the ninth straight month of the private-sector PMI falling below the threshold 50 dividing expansion from contraction.
MSCI's broadest index of Asia-Pacific shares outside Japan dipped as much as 0.6% after four days of gains, before recovering to fall 0.2%.
Shares in Australia eased 0.3% and its currency fell 0.2% to $1.0484, off Tuesday's four-month high of $1.0539. Australia is sensitive to Chinese economic data as China is its single largest export market.
China shares bucked the downtrend and rose on hopes of further policy easing and after the country's securities regulator encouraged companies with strong capital to buy back shares.
Japan's Nikkei stock average slid 1.1%.
Concerns about demand from China weighed on commodities, pushing copper down 0.1% to $7 550 a tonne and Brent down 0.5% to $104.45 a barrel, with US crude also falling 0.3% at $87.84.
"Copper is likely to stay range bound for the next few weeks. China's copper demand is not good and there's no sign of any recovery at the moment," said Beijing-based metals analyst Wang Ling of consultancy CRU.
The dollar fell to a two-month low of ¥77.90 in a knee-jerk reaction before inching back up to around ¥78.
The Fed is not expected to launch more easing at the end of its two-day meeting later on Wednesday, but likely reinforce a commitment to an accommodative stance and could drop hints about more measures in coming weeks.
ECB meets Thursday
The situation in Europe was far more unsettling, with no apparent consensus emerging on contentious issues, while analysts and traders see any action from the ECB may only give a temporary relief for strained bond markets in the euro zone.
The euro eased 0.1% to $1.2291, below a three-week high of $1.2390 touched on Friday, but staying above a two-year low around $1.2042 reached last week.
Expectations were high for the ECB to resume its bond buying programme aimed at lowering borrowing costs for Italy and Spain, with their 10-year bond yields inching up on Tuesday as wariness resurfaced over a potential policy move.
"The euro could benefit momentarily if the ECB says it will buy bonds. But that will probably provide a good opportunity to sell the euro," said Minori Uchida, chief FX strategist at the Bank of Tokyo-Mitsubishi UFJ.
Bonds over stocks
Data on Tuesday showed EPFR global-tracked bond funds took in $223.2bn while equity funds surrendered $31.4bn so far this year to the week ending July 25, in line with cautious investor approach to risk.
Asian credit markets weakened, widening the spread on the iTraxx Asia ex-Japan investment-grade index by 3 basis points, but still near its lowest since early April hit on Tuesday.
Japanese government bond prices snapped a four-day losing steak on Wednesday, with benchmarks yields off three-week highs.
The eurozone debt crisis has spurred a structural shift in global investor decisions favouring bonds issued by the United States, Germany and Japan.
"Stocks globally have been failing to draw investor appetite despite being left at attractive levels, where dividend and earnings yields stood well above government bond yields, a condition which normally triggers a stock market rally," said Naohiko Baba, Japan chief economist at Goldman Sachs.
Reflecting growing uncertainty about gold's appeal in investor asset allocations, the US Mint's American Eagle gold coins were poised to log their weakest July monthly sales in five years. Spot gold held steady at $1613.95 an ounce.