Most Asia stocks down as bank policy fears return

Hong Kong - Expectations the US will hike interest rates and the EU will also tighten monetary policy dragged most Asian stock markets lower on Wednesday but Tokyo was the standout performer as exporters rallied on a weaker yen.

Investors tracked their US counterparts down after comments from two top Federal Reserve officials fanned speculation it will lift borrowing costs before the end of the year.

Talk of an increase returned last week after data showed US factory activity rebounded in September, while dealers look ahead to a crucial jobs report on Friday.

On Tuesday Cleveland Fed president Loretta Mester said she saw a strong case for a rate hike in November.
They were followed by Richmond Fed head Jeffrey Lacker, who said a rise was needed to avert a surge in inflation that could lead to sharp rate hikes later.

"A December rate hike seems almost certain, and it sounds like that may be followed by two more rate hikes next year instead of one," Chihiro Ohta, a Tokyo-based senior strategist at SMBC Nikko Securities, told Bloomberg News.

Bloomberg also cited unnamed European Central Bank officials on Tuesday as saying there was an "informal consensus" that it should gradually scale back its bond-buying programme in steps of €10bn.

The news from Europe and the US comes as analysts warn the years of cheap cash are likely coming to an end, with the US economy picking up.

Talk of higher US rates has boosted the dollar, which rose to ¥102.97 on Wednesday, from ¥102.88 in New York.

That in turn lifted Japan's exporters, sending the Nikkei stock index rising 0.57% in the morning - extending a rally to three straight days.

But, while Hong Kong edged up 0.1%, most other Asian markets struggled. Sydney fell 0.4%, Seoul lost 0.1%, Manila tumbled 1.3% and Wellington was off 0.9%. Singapore shed 0.2%.

"We've been at an inflection point in financial markets for a few weeks now, with market participants sensing a changing tide among central banks," Chris Weston, chief markets strategist at IG in Melbourne, said in an e-mail to clients.

The pound continued to struggle, sitting at 31-year lows against the dollar after British Prime Minister Theresa May set out a timetable for leaving the European Union by 2019.

It was also at three-year lows against the euro, with talk of tighter ECB policy adding to the pound's woes.

The stronger dollar also sent gold tumbling almost $37 on Wednesday to $1 272, its lowest levels since mid-June, before Britain's shock vote to leave the EU sent dealers rushing for safe haven investments.