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Asia: Markets retreat on prospects of US rate hike

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[HONG KONG] Asian markets retreated on Wednesday as investors contemplated the effects of an expected US interest rate hike this year, while the pound staged a mild recovery after suffering a series of losses on worries about Britain's EU exit.

Samsung Electronics suffered another bout of selling, extending its losses this week alone to about 11 per cent after it announced late Tuesday it would scrap the troubled flagship Galaxy Note 7 over an exploding battery crisis.

The regional retreat follows sharp falls on Wall Street, where investors were spooked by below-forecast earnings from aluminium-maker Alcoa that raised concerns about the state of corporate America going into the reporting season.

Markets are keenly awaiting the release of minutes from the Federal Reserve September policy meeting, hoping it will give an idea about the bank's plans for lifting borrowing costs.

Market voices on:

A string of recent upbeat data on the world's top economy, and increasingly positive comments from Fed boss Janet Yellen, has fuelled speculation rates will rise by the end of the year.

"Stock markets are becoming nervous about the prospect of rising interest rates against a background of moderate profit growth and relatively high valuations," Ric Spooner, chief market analyst in Sydney at CMC Markets, said in an e-mail.

"Given how critical the interest rate outlook is at the moment, markets will be focused on the degree of support for a rate hike this year revealed in the Fed minutes," he said, according to Bloomberg News.

By the break in Tokyo, the Nikkei index was down 0.6 per cent, while Hong Kong - where monetary policy is tied to the United States' - the Hang Seng Index was 0.9 per cent lower.

Shanghai slipped 0.3 per cent, Sydney was off 0.4 per cent and Singapore shed 0.6 per cent, while Seoul dipped 0.1 per cent.

The prospects of a US rate hike has rallied the dollar in recent weeks. The pound has taken a particular hiding as Britain's leaders bicker over how to leave the European Union, with many fearing a "hard Brexit" of no access to the EU single market after leaving the bloc.

Sterling has lost nearly 18 per cent to sit at 31-year lows against the greenback since British voters narrowly approved Brexit in a referendum in June.

However, on Wednesday it had some respite and edged up against its peers buying US$1.2280 from US$1.2257 in New York.

In Seoul, the KOSPI was dragged by market heavyweight Samsung Electronics' 2.0 per cent retreat.

The South Korean giant plummeted 1.5 per cent Monday and more than eight per cent on Tuesday after it stopped production of the Note 7, warning people who bought it already to stop using it.

After the close of trade, it then announced it was scrapping the model completely.

The announcements came a little over a month after Samsung announced a recall of 2.5 million Note 7s following complaints that its lithium-ion battery could catch fire.