* Asian shares buckle, Nikkei leads the way with 2.7 pct
* China manufacturing PMI slips to six-month low at 49.5
* Emerging markets fall anew despite rate hikes in Turkey,
* Fed trims asset buying by a further $10 bln, as expected
By Wayne Cole
SYDNEY, Jan 30 Asian shares fell on Thursday
after strains in emerging markets returned with a vengeance and
the Federal Reserve stepped back on its stimulus, sending
investors scurrying to the safety of bonds and yen.
Adding insult to injury, a private measure of Chinese
manufacturing slipped to a six-month low for January and gave
speculators a fresh excuse to target riskier assets.
While analysts emphasised that China's January data is often
heavily distorted by the timing of the Lunar Year holidays, and
the final factory reading was little changed from a flash
estimate released last week, the drop in the HSBC PMI had an
exaggerated impact in already skittish markets.
Hardest hit was Japan's Nikkei which sank 2.7
percent to the lowest since mid-November. Shanghai
slipped 0.5 percent while MSCI's broadest index of Asia-Pacific
shares outside Japan lost 0.6 percent.
India's benchmark hit lows not seen in two months,
prompting the country's finance minister to pledge whatever
steps were needed to maintain stability.
Markets have now shed all the gains made on Wednesday when
the region had hoped that aggressive rate hikes by Turkey would
shore up its currency and ease the risk of capital flight from
emerging markets in general.
Investors in Europe and the United States were less
impressed, however, perhaps worried about the damage higher
rates might do to economic growth in these countries.
The Dow ended Wednesday with losses of 1.19 percent,
while the S&P 500 shed 1.02 percent.
Indeed, when South Africa's central bank surprised by
lifting its rates half a percentage point investors reacted by
dumping the rand. Likewise, Turkey's lira saw
most of its initial gains stripped away.
That in turn revived demand for safe havens such as the yen,
Swiss franc and sovereign bonds. The U.S. dollar was
stuck at 102.45, having shed a full yen overnight.
The euro also lost ground on the yen and Swiss franc, but
was sidelined on the dollar at $1.3650.
Bonds benefited from the general mood of risk aversion with
U.S. 10-year Treasury yields at 2.69 percent, having
hit the lowest since mid-November on Wednesday at 2.66 percent.
FED STICKS TO TAPERING
The focus on safety was only sharpened by the Fed's
well-flagged decision to trim its monthly bond buying program by
a further $10 billion a month.
There had been some talk the wild swings in emerging
markets might give the Fed pause for thought. Instead, Barclays
economist Michael Gapen noted the Fed made no mention at all of
financial markets in its statement.
"In our view, the type of volatility seen in recent weeks is
insufficient to cause the committee to alter its policy stance,
particularly so soon after tapering began," he added.
"We expect the committee to continue reducing the pace of
asset purchases by $10 Billion at each upcoming FOMC meeting
through September and then take a final $15 billion reduction in
October to conclude QE3."
Many seem to agree, with a Reuters poll of 17 primary
dealers in the Treasury market finding all expected QE to be
wound down this year.
The prospect of a steady withdrawal of stimulus coupled with
improving economies in the developed world has attracted funds
away from many emerging markets, particularly those with current
account deficits and/or political troubles.
With Brazil, Turkey, South Africa and India all holding
elections this year, policymakers are likely to be wary of
hiking rates too much to avoid damaging economic growth.
The vulnerabilities in the emerging world were noted by the
Reserve Bank of New Zealand when it decided to hold off on
raising interest rates on Thursday.
The central bank kept rates at a record low of 2.5 percent
but said it was likely to start tightening soon, given the
strength of the domestic economy and growing inflationary
In commodity markets, gold found itself back in favour as a
store of wealth and held at $1,262.44, having bounced
from a low of $1,249.04 on Wednesday.
Oil prices were modestly higher with U.S. crude 18
cents firmer at $97.54 a barrel, while Brent gained
another 5 cents to $107.90.