GLOBAL MARKETS-China shares down, Aussie drops after inflation data

Wed Apr 23, 2014 2:11am EDT

* China PMI meets consensus forecasts, Hk shares fall

* Aussie plunges after inflation surprisingly low

* Risk sentiment bolstered by gains in US, Europe

* Major currencies in tight range

By Wayne Cole and Vidya Ranganathan

SINGAPORE, April 23 (Reuters) - China's stock markets fell again on Wednesday after a survey showed manufacturing activity in the world's second-biggest economy was still contracting in April, while the Australian dollar tumbled to a two-week low after data showed surprisingly low inflation.

Overall, however, trading across most asset markets in Asia remained surprisingly subdued, with MSCI's broadest index of Asia-Pacific shares outside Japan showing little movement.

The sobering economic news on China came after stocks in Europe and Wall Street enjoyed merger-driven gains on Tuesday.

Financial spreadbetters expected European shares will pause after those gains, forecasting Britain's FTSE 100 and France's CAC 40 to open flat, and Germany's DAX down 0.3 percent.

Investors hoping that the Chinese HSBC manufacturing PMI for April would show some stabilisation in the slowing economy were relieved when the survey came in at 48.3, still in contractionary territory but slightly above the March number.

Still, both the Shanghai Composite Index and the China Enterprises Index of the leading offshore Chinese listings in Hong Kong weakened, hurt by a sell-off in telecoms shares after the mainland's biggest carrier China Mobile posted its third straight quarterly decline in profits.

The HSCE fell 1.3 percent, taking its total losses to 5 percent in under two weeks.

The Aussie fell after data showing Australian consumer price inflation was a surprisingly low 0.6 percent last quarter.

The currency slid more than one U.S. cent to $0.9277 in reaction to the soft inflation reading. Interbank futures <0#YIB:> rallied as the market pared back the risk that the Reserve Bank of Australia will have to raise interest rates before the year-end.

"The fall in the Aussie was quite large considering that interest rate markets weren't pricing a hike until mid-2015 anyway," said Sean Callow, currency strategist at Westpac.

"The slide gives the impression that Aussie bears have been waiting for a reason to bash it and are jumping on the opportunity."

Australia already has high yields relative to its rich world peers which, combined with improving economic data, has been attracting offshore money into the local dollar.

Elsewhere in Asia, Japan's Nikkei gained 0.8 percent while Australia's main index edged up 0.7 percent.

The better mood owed much to Wall Street where the Dow rose 0.4 percent, while the S&P 500 gained 0.41 percent and the Nasdaq 0.97 percent.

The FTSEurofirst 300 index of top European shares jumped 1.34 percent on Tuesday.

CHINA INFUSES CASH

China's stock markets have been hit by concerns about a potential share oversupply after the securities regulator released a raft of prospectuses from new firms planning to list, marking the end of a lull in new listings.

The total number of firms that announced plans for IPOs in the past four days alone has risen to 64. China halted new listings for 14 months from late 2012, in what some analysts said was a bid to shield sluggish domestic equity markets from further downward pressure

On Tuesday, China's central bank said it will cut the amount of deposits rural banks must hold as reserves by between 0.5 and 2 percentage points, the latest in a series of measures to help combat a slowing economy.

"The impact of a selective RRR cut is still limited as it will only inject as much as RMB100 billion liquidity into the system," noted analysts at ANZ.

"We would treat the move as a signal which reflects that the accommodative monetary policy stance will be maintained over the foreseeable future, given that the real economy is expected to remain lukewarm and inflation pressures are mild."

The yuan hit a 16-month low against the dollar on Wednesday, extending a losing trend that stems from the central bank's guidance for the currency and a policy aimed at detering speculators.

The U.S. dollar was otherwise sidelined at 102.50 yen and $1.3814 per euro, having held to tight ranges for some days now.

In the United States and Europe all the talk was of mergers, this time in the pharmaceutical sector.

AstraZeneca climbed 4.7 percent after the Sunday Times newspaper reported that Pfizer approached its British rival with a 60 billion pound ($101 billion) takeover offer. Pfizer rose 1.2 percent to $31.23.

GlaxoSmithKline rose 5.2 percent after it agreed to sell its oncology products to Novartis for $14.5 billion. Novartis' shares added 2.3 percent.

In commodity markets, Brent crude held above $109 a barrel, just off a six-week high of $110.36 last week, cushioned by continued concerns over the stand-off in Eastern Ukraine.

U.S. crude added 11 cents to $101.86 a barrel.

Gold remained out of favour after touching its lowest in more than two months on Tuesday, weighed down by gains in Wall Street stocks and as outflows from physical gold funds pointed to weak investment appetite.

Early Wednesday, spot gold was trading at $1,284.4 an ounce, just off a trough of $1,277.10. (Editing by Chris Gallagher & Shri Navaratnam)

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