Asian markets fall on Friday

Hang Seng led regional slump while Sensex, Sydney follows

Stock markets in Asian region finished Friday, 19 February 2010 with a fall on, as shares tied to the economic cycle declined and gold prices fell amid rising expectations that a hike in the Fed's main policy rate could follow sooner than many had anticipated. The decision was seen as an initial step toward rolling back aid extended to help the economy emerge from the worst crisis in decades. Higher borrowing costs usually put a drag on equity markets by drying out liquidity.

On Wall Street, the Dow finished near the highs of Thursday's session, after data showing strong regional business activity but a still-weak labor market failed to clarify the hazy economic recovery outlook. The Dow Jones Industrial Average went higher by 84 points, or 0.8%, at 10,393. The S&P 500 added 7 points, or 0.7%, at 1,107, and the Nasdaq went ahead by 15 points, or 0.7%, to 2,242.

But in a surprise move after the closing bell, the Federal Reserve announced it will hike its discount rate to 0.75% from 0.5% effective Friday. The move, which the Fed characterized as normalization, will narrow the spread between the fed funds rate and the discount rate to 0.5%.

In the commodity market, crude oil fell for the first day in four after the Federal Reserve raised its discount rate, pushing the dollar higher and damping investor demand for commodities.

Crude oil for March delivery fell as much as $1.29, or 1.5%, to $77.85 a barrel in electronic trading on the New York Mercantile Exchange. It was at $77.90 at 4:16 p.m. Singapore time. Yesterday, the contract rose $1.73 to $79.06, the highest settlement price since 14 January 2010.

Brent crude for April delivery fell as much as $1.25, or 1.6 percent, to $76.53 a barrel on the London-based ICE Futures Europe exchange. It was at $76.66 at 4:20 p.m. Singapore time. Yesterday, the contract rose $1.51, or 2 percent, to $77.78, the highest settlement since 14 January 2010.

Gold, little changed in London today, may fall after the dollar strengthened on an increase in the Federal Reserve’s discount rate, curbing the metal’s appeal as an alternative investment.

Gold for immediate delivery fell as much as $9.29, or 0.8%, to $1,099.41 an ounce and was at $1,107.30 at 10:14 a.m. London time. The metal is up 1.3% this week. Bullion for April delivery was 1% lower at $1,107.50 on the New York Mercantile Exchange’s Comex unit.

In the currency market, the dollar headed higher in Asian trading Friday, after the U.S. Federal Reserve delivered a surprise hike in its discount rate late Thursday after the close of U.S. markets.

The Japanese yen was softened against greenback on Thursday. The Japan’s currency yen was quoted 91.65 against the greenback from 91.27 yen.

The Hong Kong dollar was trading at HK$ 7.7676 against the dollar. Actually the Hong Kong dollar is pegged at HK$ 7.8 to the U.S. dollar but can trade between HK$ 7.75 and HK$7.85 to the U.S. dollar.

In Sydney trades, the Australian dollar dropped today as the first step of the US central bank unwinding its stimulus to combat the economic downturn gave a boost to the American currency.

The Australian dollar was recently trading at $US0.8909, down 0.6% from Thursday's close of US$0.8957. The Australian dollar opened higher with traders rushing in to buy the higher yielding currency following a surge in equity and commodity markets. In early trades, the Aussie was quoting at US$0.9025-US$0.9027, up 0.76% from Thursday's close of US$0.8957.

In Wellington trades, the New Zealand dollar fell more than a cent today after the US Federal Reserve decided to lift its discount rate, a rate at which it lends emergency funds at, by 0.25% to 0.75%. The move after US markets closed caught traders in the early Asian time zone by surprise and made for a volatile session in New Zealand. The NZ dollar was at US69.61c at 5pm from US70.43c at 8am and US70.05c at 5pm yesterday.

The South Korean won finished at 1,160.40 won to the greenback, down 9.90 won from Thursday, as the Fed's rate hike shrank investor appetite for riskier currencies

In equities, Asian shares mostly declined Friday as the U.S. Federal Reserve's decision to raise its discount rate pushed the dollar higher but hurt investor sentiment and commodity prices, with Hong Kong stocks falling the most.

In Japan, the stock market snapped two-day gains and ended in negative territory on Friday, as traders reacted negatively to the surprise hike in discount rate by the US Federal Reserve, signaling the beginning of the end of stimulus measures to the economy. Concerns that the Bank of Japan might follow suit and more rate hikes slowing down the recovery prospects haunted investors, despite weaker local currency. Almost all the stocks ended in negative territory, with banks and realty stocks leading the losses.

The benchmark Nikkei 225 Index lost 212.11 points, or 2.05% to 10,124 while the broader Topix index of all First Section issues lost 15.65 points, or 1.73%, to 889.

On the economic front, the Bank of Japan, in its Monthly Report of Recent Economic and Financial Developments, maintained its economic assessment and said that conditions are likely to continue improving, although the pace of improvement is likely to remain moderate for the time being. The central bank noted, Japan's economy is picking up mainly due to various policy measures taken at home and abroad, although there is not yet sufficient momentum to support a self-sustaining recovery in domestic private demand.

In a separate report, the Ministry of Trade, Economy and Industry revealed that all-industry activity in the country unexpectedly dropped 0.3% in December compared to the previous month. Economists expected the all-industry activity to rise 0.1% for the month. On annualized basis, all industrial activity declined 1.6% during December over the same period last year, the report noted.

In Hong Kong, stock market fell further on Friday, after the US Federal Reserve increased the interest it charges banks for emergency loans, prompting fears of faster-than-expected tightening. The bout of profit selling got intensified due to the recent run up in the local equities. The Hang seng had ended at a two week highs yesterday and the US Fed’ discount rate hike seemed to prompted plenty of selling ahead of the weekend for the Hong Kong stocks.

At the closing bell, the Hang Seng Index stumbled 528.13 points, or 2.59%, to 19894.02. Meanwhile the Hang Seng China Enterprise, which tracks the overall performance of 43 mainland Chinese state-owned enterprises on the Hong Kong Stock Exchange, shrank 337.84 points, or 2.91%, to 11263.83.

In Australia, stock markets in Australia extended losses, finishing Friday on lower side, as investors turned cautious after the US Federal Reserve’s decision to raise the discount rate spurring concern the global recovery will slow as stimulus programs are unwound jolting equities and commodities. The benchmark S&P/ASX200 index was down 19.66 points, or 0.421%, at 4635.1. The broader All Ordinaries index was off 17.6 points, or 0.4%, to 4656.3.

The Reserve Bank of Australia governor Glenn Stevensan says the Australian economy is well positioned to prosper due to its proximity to a strong Asian region, as it sets course on a new upswing in growth. Stevensan also said further adjustments to monetary policy will be needed to ensure inflation remains consistent with the RBA’s 2% - 3% target band. He further added that homeowners should brace for further interest rate rises this year, although the degree of official changes will be subject to how retail banks react.

In New Zealand, equities inched up into the positive region on the last trading day of the week after dipping down yesterday. The NZX 50 ascended 0.17% or 5.32 points to 3107.08. Meanwhile, the NZX 15 inched up 0.27% or 14.89 points to close at 5600.55.

In South Korea, stocks closed lower as the overnight U.S. hike of its emergency-loan rate rang alarms over an end to loose credit. The benchmark Korea Composite Stock Price Index (KOSPI) dropped 27.29 points to end at 1,593.9.

In Philippines, the stock market closed lower, despite the advance in advance in US stocks. Cautiousness and risk aversion ruled the market as market players were seen selling the key heavy weight stocks against their continued concerns over the country’s budget deficit and also after the U.S. Federal Reserve raised the discount rate. At the final bell, the benchmark index PSEi declined 0.71% or 21.41 points to 2,978.53, while the All Shares index tumbled 0.67% or 12.83 points to 1,890.57.

In India, the key benchmark indices dropped in choppy trade as the US Federal Reserve's decision to raise its discount rate hurt investor sentiment. Realty, metal, auto, IT and banking stocks fell. Index heavyweight Reliance Industries edged lower. Capital goods stocks cut early losses. The market breadth was weak. A bout of volatility was witnessed in the second half of the trading session. The BSE 30-share Sensex closed down 136.21 points or 0.83% to 16,191.63. The S&P CNX Nifty was down 42.85 points or 0.88% to 4844.90.

Elsewhere, Malaysia’s Kula Lumpur Composite index finished slightly lower at 1257.67 while stock markets in Indonesia’s Jakarta Composite index gave up by 5.66 points ending the day lower at 2554.38. In Singapore, the blue chip Straits Times Index was at 2,757.14, slid 12.05 points or 0.44%.

In other regional market, European stock markets were showing red ink on Friday, as markets got a first chance to react to a surprise rate hike by the U.S. Federal Reserve, with banks and financial services stocks showing the strain and resource stocks sharply lower, not helped by weak results from Anglo American. On a regional level in Europe, the FTSE 100 was down 0.34% or 18.30 points to 5,307 and the German DAX fell 0.56% or 31.73 points to 5,649. The French CAC-40 fell 0.73% or 27.45 points to 3,720.