Asia: Stocks set for fourth weekly drop on global growth concern

[SYDNEY] Asian stocks headed for its worst streak of weekly losses since September as investors assess what a US interest-rate increase as soon as next month will mean for global growth. Raw-material makers rebounded to lead gains on the regional benchmark index.

The MSCI Asia Pacific Index declined 0.1 per cent to 125.17 as of 9:04 am in Tokyo, extending this week's slide to 0.4 per cent. The gauge is on course for a fourth week of losses, the worst run since seven weeks of declines that ended in September.

This week's surge in expectations for higher US rates has dealt another blow to sentiment that was already brittle amid weaker-than-estimated earnings in Japan and disappointing economic data in China.

"Rate-hike concerns have continued to weigh on the equity markets," said Angus Nicholson, Melbourne-based market analyst at IG Ltd. "Risk off sentiment looks set to dominate the open in Asia."

It's been a tumultuous year for investors in Asia Pacific equities. The regional index began the year with a 14 per cent slump through the February low amid concern a devaluation of the yuan would curb global growth and amid prospects for a US rate increase.

It then rallied almost 20 per cent through this year's peak in April before beginning the current retreat.

Some Fed policy makers expressed concern that markets were ill-prepared for a rate increase next month, minutes of the central bank's April meeting showed this week. The document also indicated policy makers' willingness to raise interest rates in June if the economy continues to improve.

New York Fed president William Dudley said Thursday the central bank is moving closer to raising rates at one of its next two meetings and the fact this message is getting through to financial markets is welcome news.

Traders now see a 28 per cent chance of higher borrowing costs next month, up from 4 per cent at the start of this week. Odds for a move by July are 47 per cent, while an increase by September is seen as having a 58 per cent chance.

Friday morning kicked off with deal activity in Australia before markets opened. Papua New Guinea oil and gas producer Oil Search Ltd agreed to buy InterOil Corp in a deal valuing the explorer at about US$2.2 billion.

Interoil surged 29 per cent in after-hours US trading. Oil Search slid 0.9 per cent.

Japan's Topix index fell 0.5 per cent. Australia's S&P/ASX 200 Index was little changed and New Zealand's S&P/NZX 50 Index slid 0.2 per cent. South Korea's Kospi index lost 0.1 per cent.

Futures on Hong Kong's Hang Seng Index and contracts on the Hang Seng China Enterprises Index of mainland firms listed in the city both declined 0.6 per cent in most recent trading. Futures on the FTSE China A50 Index lost 0.3 per cent.

E-mini futures on the S&P 500 slipped 0.1 per cent. The underlying gauge lost 0.4 per cent Thursday, closing at a seven-week low.

BLOOMBERG