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[SINGAPORE] Asian stocks fell as investors weighed the outlook for monetary policy in the US and Japan after the European Central Bank downplayed the need for more economic stimulus. South Korean shares dropped amid concern North Korea may have conducted a nuclear test.
The MSCI Asia Pacific Index dropped 0.7 per cent to 141.03 as of 10:49am in Tokyo. The measure is heading for a 2.1 per cent advance this week as traders pared bets the Federal Reserve will raise rates at its September meeting while speculation swirled over whether the Bank of Japan will add to already record stimulus.
Shares in the US and Europe fell after ECB chief Mario Draghi played down the prospect of an increase in asset purchases at a time when concern over the impact of Brexit on the euro area is mounting.
"While the ECB disappointed, we could still expect additional stimulus later in the year as there's so much uncertainty in Europe," James Woods, a strategist at Rivkin Securities in Sydney, said by phone.
"Investors will probably sit on the sidelines ahead of the Fed and Bank of Japan policy meetings."
South Korea's Kospi index lost 1.3 per cent, on course for its biggest drop since July 6. A shallow 5.0-magnitude earthquake was detected near North Korea's nuclear test site, according to the European Mediterranean Seismological Centre.
South Korea's government said North Korea may have conducted a nuclear test, Yonhap News said, citing an unidentified government official.
Draghi Decides Europe's Stoxx 600 index slid 0.3 per cent on Thursday while the US S&P 500 Index lost 0.2 per cent, retreating from a record high. Mr Draghi said the ECB didn't discuss an extension to its bond-buying programme at its latest meeting, where interest rates were left unchanged.
The European decision comes before this month's closely watched BOJ meeting, at which the board will announce the results of a comprehensive review of monetary policy and decide whether it should expand easing.
Japan's Topix index slid 0.3 per cent as the yen added 0.4 per cent against the US dollar on Friday. New Zealand's S&P/NZX 50 Index declined 0.6 per cent. Australia's S&P/ASX 200 Index fell 0.7 per cent.
Hong Kong's Hang Seng Index climbed 0.4 per cent to the highest level since Aug 2015. Chinese shares in Hong Kong rose for a seventh day, increasing 0.8 per cent.
The Shanghai Composite Index added 0.2 per cent. Data showed China's factory-gate deflation eased for an eighth straight month signalling less need for the central bank to ease further.