Asian stock rally fades amid Fed rate outlook as oil declines, STI closes 1.9% down

SYDNEY (BLOOMBERG, REUTERS) - Asian stocks reversed gains amid the highest volatility in two months as investors assessed the outlook for United States monetary policy and crude oil retreated.

Singapore and Indonesia led equity losses as they resumed trading after a holiday, with the Straits Times Index (STI) fell as much as 2.01 per cent Tuesday, posting its biggest intra-day percentage loss since June 24, before closing the day down 1.9 per cent at 2818.38. The fall in property, energy and financial sector shares depressed the market, said Nirgunan Tiruchelvam, an analyst with Religare Capital Markets.

The MSCI Asia Pacific Index fell 0.1 per cent to 137.51 as of 4:35 p.m. in Hong Kong, after earlier rising as much as 0.7 per cent. Its 10-day volatility reached the highest since July 7.

Oil futures sank more than 2 per cent after the International Energy Agency said the glut will persist into late 2017. Asian shares had edged higher earlier amid signs China's economy is rebounding and following dovish comments from Federal Reserve board member Lael Brainard.

Stock markets have been whipsawed in recent weeks amid opposing views from Fed officials as investors seek more clarity on the US central bank's next policy move. 

Ms Brainard said she sees no reason to rush to raise rates because right now there seems little need to lean against an overshoot of inflation or employment. Her speech followed comments by Boston Fed President Eric Rosengren, who said last week the US economy could overheat if the central bank waited too long to tighten, potentially spurring a global rout in equities.

"Markets are really struggling to read the runes of Fed statements," said Andrew Parry, London-based head of equities at Hermes Fund Managers Ltd. "Only last week they were talking about the need to have an early rate rise. They are still very nervous about the process of normalization," he said in a Bloomberg TV interview.

Hong Kong's Hang Seng Index fell 0.3 per cent, reversing earlier advances, amid speculation that better-than-expected Chinese economic data will deter policy makers from easing monetary policy. South Korea's Kospi index added 0.4 per cent, Australia's S&P/ASX 200 Index lost 0.2 per cent and New Zealand's S&P/NZX 50 Index dropped 0.4 per cent.

Taiwan's Taiex index lost 0.1 per cent.

Singapore's Straits Times Index tumbled 1.9 per cent, the most since June 24 and the Jakarta Composite Index sank 1.1 per cent. Thai stocks climbed 1.4 per cent following the worst four-day drop since December 2014. India is closed for a holiday.

Most Japanese stocks ended higher after Japan's Topix index fluctuated throughout the day before closing little changed.