China: Stocks drop with Aussie, copper on weak PMI as gold gains

[BEIJING] Chinese shares dropped with Australia's dollar and copper futures halted a seven-day rally as a private China factory gauge showed a faster-than-estimated contraction. US oil slipped, while gold climbed.

The Shanghai Composite Index slid as much as 1.2 per cent by 10:58 am in Tokyo, while a gauge of mainland companies listed in Hong Kong erased earlier gains. Copper futures slid 0.9 per cent on the Comex. The Aussie lost 0.5 per cent, as the Bloomberg Dollar Spot Index extended Friday's 0.6 per cent rebound. The Korean won also retreated. Gold climbed 0.4 per cent. US oil was at US$58.77 a barrel.

The final April Purchasing Managers' Index from HSBC Holdings Plc and Markit Economics fell to 48.9, the lowest since in a year, with the China Securities Journal forecasting second- quarter economic growth will slow to 6.8 per cent. Australia's central bank reviews rates Tuesday. The dollar pared a third weekly decline Friday, rallying against major peers as two Federal Reserve officials said US interest rates could be raised at any time.

"Expectations of further stimulus have been the key driver for Asian equities," Evan Lucas, a markets strategist at IG Ltd in Melbourne, said by phone. "There's probably a risk of a short-term pullback for the market. But medium-term, the bias will probably be on the upside. China has got so many levers to pull so they're in a slightly comfortable position. They're trying to moderate the slowdown." Dollar Moves The factory reading missed the median estimate of 49.4 in a Bloomberg survey and was lower than the preliminary reading of 49.2. Numbers below 50 indicate contraction. The deterioration contrasts with the official manufacturing PMI for April that suggested a stabilization.

Gauges on manufacturing are also due Monday for Taiwan, Vietnam and India. Japan, Thailand, Malaysia, India and the UK are closed for holidays.

Bloomberg's dollar index, a gauge of the currency versus 10 major counterparts, lost 3 per cent in April, its first decline since June last year. The currency weakened amid speculation that a run of mixed economic data means the Fed will put off rate increases. The index rose 0.1 per cent Monday.

John Williams, chief of the San Francisco Fed and a voting member of the Federal Open Market Committee, said policy makers would be making judgments at each gathering based on the latest economic data. Cleveland Fed President Loretta Mester, who doesn't vote this year, told reporters Friday that "all meetings are on the table" for the first rate increase in nine years.

West Texas Intermediate crude oil dropped 0.6 per cent Monday following a 25 per cent jump in April, its steepest monthly advance since 2009. Brent crude slipped 0.3 per cent to US$66.25 a barrel.

US drillers reduced the number of active rigs for the 21st week, according to data from Baker Hughes Inc the number of rigs dropped by 24 to 679, the fewest since September 2010, boosting speculation American output may start to ease up. Iraq increased exports in April to the most in three decades, according to an Oil Ministry spokesman for the second-biggest producer in the Organization of Petroleum Exporting Countries.

BLOOMBERG