Asian stocks hit 9-month lows on worries over China economy, US rates

Asian shares slid to nine-month lows on Thursday, while the dollar was at two-month peak as fears over China's sluggish economic recovery and concerns that the Federal Reserve may still raise interest rates rattled investors.

MSCI's broadest index of Asia-Pacific shares outside Japan (.MIAPJ0000PUS) slid to 495.03, its lowest since Nov. 29. It was last down 1.14 per cent at 497.11, with the index down 8 per cent for August and set for its worst monthly performance since September.

Losses were broad-based across Asia Pacific on Thursday, with Japan's Nikkei (.N225) and Australia's S&P/ASX 200 index (.AXJO) down 1 per cent.

China's blue-chip CSI 300 Index (.CSI300) was 0.45 per cent lower, while the Hong Kong's Hang Seng Index (.HSI) fell 1.7 per cent and was at near nine month lows.

China stocks have been in the doldrums as a series of economic data has laid bare the stuttering post-pandemic recovery, with investors so far unimpressed with moves from policymakers.

"Investors looking for more aggressive support from policymakers amid soft activity have been disappointed as the recent incremental measures haven't been sufficient to restore confidence," said Taylor Nugent, an economist at NAB.

Adding to the worrying landscape for the world's second biggest economy is the deepening property sector crisis. Missed payments on investment products by a leading Chinese trust firm and a fall in home prices have enhanced the gloom.

Overnight, Wall Street ended lower after minutes from the Fed's July meeting showed officials were divided over the need for more interest rate hikes.

"Some participants" cited the risks to the economy of pushing rates too far even as "most" policymakers continued to prioritise the battle against inflation.

The US central bank hiked rates by 25 basis points at the July meeting after standing pat in June. Fed Chair Jerome Powell said at the time the economy still needed to slow and the labor market to weaken for inflation to "credibly" return to the US central bank's 2 per cent target.

The commentary from officials, including the hawks suggest a willingness to pause again in September, but to leave the door ajar for a further hike at either November of December meetings, ING economists said in a note.

"We think the Fed will indeed leave interest rates unchanged in September, but we don't think it will carry through with that final forecast hike," they said, pointing out that further rate hikes could heighten the chances of recession.

Markets are pricing in an 86 per cent chance of the Fed standing pat next month, CME FedWatch tool showed, with a 36 per cent chance of it hiking in its November meeting.

Benchmark 10-year yields reached 4.288 per cent, the highest since Oct. 21, with a 16-year peak of 4.338 per cent in sight.

The rising yields lifted the dollar, with the dollar index , which measures the US currency against six rivals, touching a two-month peak of 103.58 as investors sought safety.

The Japanese yen weakened 0.07 per cent to 146.42 per dollar, a fresh nine-month low, as traders kept a vigil on possible intervention chatter from Japanese officials. Finance Minister Shunichi Suzuki said on Tuesday authorities were not targeting absolute currency levels for intervention.

Worries over China and the trajectory of the US interest rates also rattled the commodities market, with oil prices dropping for the fourth straight session. US crude fell 0.34 per cent to $79.11 per barrel and Brent was at $83.23, down 0.26 per cent on the day.