Asian stocks track US drop after dollar gains on rate concerns

SYDNEY (Bloomberg) - Asian stocks fell, following a slump in US equities, after the US dollar gained amid speculation the Federal Reserve is moving closer to raising interest rates.

The MSCI Asia Pacific Index retreated 0.4 per cent to 142.17 as of 9.02am in Tokyo, with materials companies leading declines as all 10 industry groups fell. The Standard & Poor's 500 Index slipped 1.7 per cent on Tuesday, the biggest drop in two months, as the dollar surged to near a 12-year high versus the euro. China releases data from retail sales to factory output today.

"Rates are moving soon," said Mr Evan Lucas, Melbourne-based market strategist at IG, a provider of trading services in equities, currencies and commodities. "The job report on Friday has awoken the currency markets to this fact and the equity market is now feeling the early effects of what to come."

Federal Reserve Bank of Dallas President Richard Fisher said the central bank should begin to raise rates as the labour market improves. While policymakers from Sydney to Frankfurt are moving towards looser monetary policy, the Fed stands out in accepting a higher exchange rate as a sign of economic strength.

Friday's job report showed US employers added 295,000 workers last month, beating the median prediction in a Bloomberg survey of economists, while the jobless rate fell to the lowest in almost seven years, to within the range the Fed considers full employment.

Japan's Topix index dropped 0.5 per cent, heading for a third straight day of losses since the US employment report. South Korea's Kospi index retreated 0.7 per cent. New Zealand's NZX 50 Index declined 0.5 per cent.

Australia's S&P/ASX 200 Index fell 1.1 per cent. Reserve Bank of Australia Assistant Governor Christopher Kent said the nation's currency is still "relatively high" given the economy's state even after the recent lowering of the exchange rate. He spoke in Hobart on Wednesday.

The economic data from China come a day after producer prices fell 4.8 per cent in February, extending a record run of declines to 36 months. While consumer prices beat estimates with a 1.4 per cent rise, it may be too early to conclude deflation risks have abated because last month's Lunar New Year holiday festivities boosted costs. The central bank cut interest rates for the second time in three months from March 1, after earlier reducing banks' reserve requirements.

China's "fixed-asset investment, industrial production and retail sales are all expected to slide," said IG's Mr Lucas. "If the US markets finally exit the six-year bull market and China does indeed slow faster than expected, Asian markets are in for a rude shock."