Asian traders tread carefully ahead of US Fed decision

[HONG KONG] A mixed bag of Chinese economic data at the weekend added to concerns about the world's number two economy Monday, while investors tread water ahead of a crucial US interest rate decision at the end of the week.

After last week's China-fuelled turmoil across global markets, there was more of a sense of calm in early exchanges, with dealers confident enough to shift out of safer assets such as the yen and dollar.

China on Sunday released another set of figures that underline weakness in its huge economy - the main driver of global growth - following disappointing reports last week.

The government said growth in industrial production increased below expectations in August while retail sales accelerated a little more than forecast.

Recently a gauge of manufacturing showed the sector contracting in August, while inflation in consumer prices rose but those at the factory gate fell at their fastest pace in six years owing to weakening overseas demand and a slack property market.

While the data is soft, analysts said it could lead to further monetary easing measures by authorities following five interest rate cuts since November.

In early equities trade Shanghai was 0.53 per cent down and Seoul dipped 0.53 per cent and Tokyo slipped 0.54 per cent. However, Hong Kong was up 0.62 per cent and Sydney rose 0.31 per cent.

Beijing also Sunday unveiled a broad set of reform guidelines to partly privatise its vast state-owned companies aimed at making them more competitive overseas and increasing transparency.

The move comes after leaders in 2013 said they wanted the market to play a greater role in the economy, easing government influence on key sectors such as transport, energy production and arms manufacturing.

Among the reported changes are efforts to modernise SOEs (state-owned enterprises), improve management of state assets and diversify their ownership structures through "mixed ownership" - or the introduction of "multiple types of investors" - ultimately meaning more private shareholders or capital.

However, the main focus this week is on the Federal Reserve's policy meeting, with hopes it will hold off hiking borrowing costs until later in the year.

The central bank is expected to announce a lift-off before 2016 but its decision has been muddied by the latest bout of volatility to hit global markets caused by concerns about China's economy and after Beijing announced a shock devaluation of its yuan last month.

"Trading will remain volatile ahead of the (Fed policy) meeting," Bernard Aw, a strategist at IG Asia in Singapore, told Bloomberg News.

"Sunday's data reinforced concerns about China's economy slowing down. Investors may expect more stimulus in the pipeline, which could provide some support to Chinese equities."

US dealers ended last week on a high. The Dow jumped 2.05 per cent, the S&P 500 climbed 2.07 per cent and the Nasdaq rallied 2.96 per cent.

While traders remain wary of any shocks to the financial system they were confident enough to look for riskier investments.

The dollar edged up to 120.68 yen from 120.57 yen Friday in New York, while the euro was at 136.95 yen against 136.64 yen. The yen is regarded as a safe bet in times of crisis and turmoil.

The single currency also ticked up to US$1.1349 from US$1.1333.

Higher yielding emerging market currencies also advanced against the dollar. The South Korean won added 0.36 per cent, while the Malaysian ringgit and Indonesia's rupiah were marginally higher.

AFP