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Asia: Stocks sink after losses in US, Europe

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[HONG KONG] Asian stocks sank on Wednesday, tracking losses in Europe and on Wall Street as investors grew anxious about a possible economic slowdown and the absence of any progress in resolving the US-China trade war.

Economists say the trade dispute between the world's top two economic superpowers will have grim implications for consumers, who will have to bear the costs of punitive tit-for-tat tariffs.

Although an index of US consumer confidence on Tuesday registered an unexpectedly strong jump for May, it was not enough to allay investors' fears, as US stocks sank, sending major indices to their lowest levels in two months.

May is now expected to be Wall Street's first down month for the year.

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"Unless we see a trade deal, negative sentiment in the market will likely continue," Kyoko Amemiya, senior market advisor at SBI Securities, told AFP.

A report in Chinese state media that suggested Beijing would restrict exports of rare earths, using the minerals as leverage in the trade dispute, also fanned anxiety.

Rare earths are a key component in devices ranging from smartphones and cameras to televisions and any move to restrict their supply would have a devastating impact on manufacturers, with China producing more than 95 per cent of the commodities.

Tokyo sank 1.1 per cent, while Hong Kong and Shanghai fell 0.4 per cent. Seoul also plunged 1.4 per cent while Sydney slipped 0.8 per cent and Singapore edged down 0.3 per cent.

'DARK CLOUDS' 

The losses in Asia came on the back of a retreat in Europe, with investors expressing concern over a spat between the European Commission and Italy, where the far-right party of joint deputy prime minister Matteo Salvini topped European Parliament elections on Sunday.

An emboldened Salvini said Tuesday he expected Brussels to hit Rome with a 3-billion-euro (S$4.7-billion) fine over Italy's rising public debt, which was 132 per cent of the country's GDP in 2018 - way above the 60 per cent EU ceiling.

With Mr Salvini determined to push back against the EU's requirements on austerity, analysts said the future outlook for the bloc was precarious.

"Populism is here to stay and will make future integration and budgetary decisions difficult to be agreed upon," said Oanda senior market analyst Edward Moya.

The European Commission is expected to start disciplinary steps against Italy on June 5 by opening an excessive deficit procedure that could hand Rome a fine of up to 0.2 per cent of the nation's GDP.

Fears over the US-China trade war also hit oil markets, where prices sank, coming after crude suffered its worst loss of the year last week.

"The dark clouds hanging over oil are unlikely to clear during today's session", said Oanda senior market analyst Jeffrey Halley.

"Oil will struggle to maintain any rally in the near-term today and may be vulnerable to a deeper pullback if the Asian stock market sell-off accelerates."

AFP