Volkswacht Bodensee - Hong Kong, Shanghai lead Asia losses as China rate cut falls flat

The optimism that fed last week's rally across world markets appears to be fading as traders are left disappointed by Beijing's efforts to act, even as growth slows and weakness persists.

The People's Bank of China reduced its benchmark five-year rate -- used to price mortgages -- by 10 basis points, less than the 15 points expected, though it did meet forecasts for a 15-point reduction in the one-year rate.

The move came after monetary policymakers last week lowered two other key rates and pumped billions into financial markets.

Stocks in Hong Kong dropped more than one percent, with tech firms -- which are susceptible to higher borrowing costs -- taking the brunt of the selling, while Shanghai was also in negative territory.

Tokyo, Seoul, Singapore, Taipei, Manila and Jakarta dropped.

The retreat extended Monday losses that were fuelled by frustration at the lack of detail from officials on measures to boost the economy, which has failed to recover since painful zero-Covid measures were removed at the end of last year.

There had been hope they would unveil help for the troubled property sector -- a crucial growth driver of GDP -- as well as consumer activity and youth unemployment.

Analysts said investors might have to wait for a key meeting headed by President Xi Jinping next month in Beijing for any major announcements.

But Stephen Innes at SPI Asset Management warned that authorities' options were limited.

"Despite China's policy pipe dream, sky-high government leverage and constrained fiscal capacity make it virtually impossible for lawmakers to provide any meaningful policy stimulus that could help extend the growth cycle and revive confidence in the economy and asset markets," he said in a note.

"One of the oddities has to be that no reopening boost has faded as quickly as in China. Hence it illustrates just how important the property market is to China's economy.

"With no 'easy fix' on the horizon, the property market's weakness and its negative impact on the rest of the economy will likely persist."

China's decision to reduce rates contrasts with the United States and other Western countries, which have been forced into a series of interest rate hikes while reducing money supply to tame inflation.

"We have a very different story across the different regions as it relates to inflation, a post-Covid recovery and what that means from a monetary and fiscal perspective," Uma Moriarity, at Centersquare Investment Management, told Bloomberg Television.

Traders are also awaiting Federal Reserve boss Jerome Powell's twice-yearly testimony to US lawmakers this week, looking for an idea about the state of the economy and officials' plans for rates.

The bank on Wednesday stood pat for the first time since starting its tightening campaign in March last year, citing a need to assess the impact of those moves.

And while it indicated it would resume hiking, observers say a series of economic indicators could give it room to hold again next month and beyond.

- Key figures around 0230 GMT -

Tokyo - Nikkei 225: DOWN 0.6 percent at 33,161.94 (break)

Hong Kong - Hang Seng Index: DOWN 1.3 percent at 19,659.12

Shanghai - Composite: DOWN 0.2 percent at 3,248.60

Euro/dollar: DOWN at $1.0914 from $1.0925 on Monday

Pound/dollar: DOWN at $1.2788 from $1.2794

Dollar/yen: UP at 142.05 yen from 141.89 yen

Euro/pound: UP at 85.35 pence from 85.27 pence

West Texas Intermediate: DOWN 1.4 percent at $70.79 per barrel

Brent North Sea crude: DOWN 0.4 percent at $75.77 per barrel

New York - Dow: Closed for public holiday

London - FTSE 100: DOWN 0.7 percent at 7,588.48 (close)

N.Fournier--BTB