Shares edge lower after weak China imports

By Chikako Mogi

TOKYO (Reuters) – Asian shares eased on Tuesday after Chinese import growth slowed sharply in June, underscoring weakness in domestic demand in the world’s second-largest economy and adding to concerns about deteriorating global economic conditions.

China’s imports rose 6.3 percent in June from a year ago, less than half the forecast of a 12.7 percent rise, while exports grew 11.3 percent on the year, faster than expectations for a 9.9 percent increase.

Demand for Chinese goods in June was well off the historical pace in part because the U.S. economy has not fully recovered, a senior Chinese customs official said on Tuesday.

MSCI’s broadest index of Asia-Pacific shares outside Japan .MIAPJ0000PUS gave up slight early gains to inch down 0.3 percent, after slumping 1.6 percent on Monday for its biggest daily loss in about a month.

Japan’s Nikkei average (.N225) fell 0.1 percent, reversing a rise in the morning as the Chinese data weighed on the market. (.T)

Hong Kong and Shanghai shares also relinquished early gains, with Shanghai stocks (.SSEC) falling 0.3 percent and Hong Kong (.HSI) down 0.2 percent after the Chinese numbers. Both markets suffered their steepest drops in five weeks on Monday, after weaker-than-expected inflation data raised fears of softening consumer demand in China.

“The more worrying sign is the slowdown in imports … It reinforces worries about the slowdown in the Chinese economy,” said Li Wei, an economist at Standard Chartered in Shanghai.

“As long as the country can maintain 5 to 10 percent growth in exports and imports, it will be able to keep a relatively healthy labor market. In the short term, the (stock) market will continue to see some downward pressure,” Li said.

The data so far will likely keep risk sentiment firmly in check, with China’s second-quarter gross domestic product report due on Friday likely to show the lowest growth in at least three years.

The Chinese trade data pushed Australian shares into negative territory (.AXJO), down 0.4 percent from up 0.2 percent prior to the release, while weighing on the Australian dollar, which eased to around $1.0170 from $1.0203.

China is Australia’s single largest market and its currency is typically associated with investor risk appetite.

While the data did little to ease worries about fragile economic conditions around the world, it was not sufficient to decisively tip the risk balance towards a hard landing, said Hirokazu Yuihama, a senior strategist at Daiwa Securities.

“Firm exports suggest external demand, probably mainly in the United States, has emerged from its worst phase and is picking up, partially offsetting weak domestic demand,” Yuihama said.

“It’s not a bad enough number to heighten the risk of a hard landing and is not likely to prompt much further selling in the markets, which have already priced in concerns over slowing growth,” he said.

EUROPE STANDS STILL

The euro, which hit a two-year low of $1.2225 in early Monday Asian trade, was down 0.2 percent at $1.2290.

Europe’s three-year debt crisis has dragged down economic activity around the world, ushering in the current deterioration in global growth and undermining investor appetite for risk.

Euro zone ministers agreed early on Tuesday to grant Spain an extra year, until 2014, to reach its deficit reduction targets in exchange for further budget savings, and set the parameters of an aid package for Madrid’s ailing banks.

But they remained far from pinning down details of bank rescues and emergency bond-buying that are of imminent concern to markets.

A surprise bare-bones agreement reached in late June to allow euro zone rescue funds to buy sovereign bonds issued by struggling states and to establish a European banking supervisor was aimed at breaking the link between banks and sovereigns.

But disappointment over a lack of swift follow-up action has pushed Spanish 10-year yields back above the 7 percent level, seen as unsustainable, and put upward pressure on yields in Italy and France.

“Markets have now repriced the linkage between the Spanish Sovereign and its banks, leading to jitters,” said Sebastian Galy, strategist at Societe General, adding that the euro still has the potential to fall further against the dollar regardless of short covering risk.

Oil fell after the Chinese data, retreating from Monday’s rally, with U.S. crude down 1.3 percent at $84.87 a barrel.

Brent plunged 1.7 percent to $98.62 on the Chinese data and on Norway’s government ordering a last-minute settlement on Monday in a dispute between striking oil workers and employers to alleviate market fears over a full closure of its oil industry and a steep cut in Europe’s supplies.

(Editing by Edmund Klamann)

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