Hong Kong shares fall after weaker China factory data; Singapore shares flat

HONG KONG (Bloomberg) - Hong Kong shares dropped with the Australian dollar as a Chinese gauge unexpectedly signaled contraction. The United States dollar held declines before a U.S. inflation report as Federal Reserve speakers reiterated the path of interest rates depends on data.

The Hang Seng China Enterprises Index dropped 1.2 percent by 11:22 a.m. in Tokyo, while the Shanghai Composite Index was little changed after capping its longest streak of gains since 2007. The Aussie weakened 0.3 percent. The greenback was at $1.0922 per euro, after sliding more than 1 percent against the 19-nation currency on each of the past two trading days. U.S. equity-index futures were little changed after benchmark gauges retreated Monday. Copper futures added 0.3 percent in London.

In Singapore, the Straits Times Index was little-changed at 11.15am Singapore time. The benchmark was up 4.21 points or 0.12 per cent at 3,414.34.

The preliminary March purchasing managers index from HSBC Holdings Plc and Markit Economics came in at 49.2, compared with the 50.5 projected by economists, with reports from the US also due. San Francisco Fed President John Williams speaks to economists in Sydney Tuesday after Fed vice chairman Stanley Fischer said data will determine when rates rise. St. Louis Fed President James Bullard also speaks today before data estimated to show consumer prices fell in February from a year before.

"Today's PMI reading is the latest in a string of disappointing data out of China and strengthens our view that the economy likely slowed sharply in" the first quarter, said Julian Evans-Pritchard, China economist at Capital Economics in Singapore. "We expect the deceleration in growth to moderate in coming months as policymakers step up fiscal spending and carry out further cuts to the required reserve ratio and benchmark interest rates in order to prevent growth this year from slipping too far below their annual target." Shanghai Streak If carried through to the end of the month, Tuesday's provisional reading of the China PMI would be the lowest since April last year. At 49.2, it was below the lowest of 17 estimates gathered by Bloomberg. Levels above 50 indicate expansion in the sector.

Hong Kong's so-called H-share index yesterday capped an eighth straight advance, the longest streak since March 2010. The Hang Seng Index was 0.5 percent lower today.

The Shanghai Composite Index, which added 12 percent in the nine days through Monday, swung between gains and losses. If the benchmark gauge for mainland China's biggest equity venue finishes higher today, it will be the longest winning streak since 1992.

The Bloomberg Dollar Spot Index, a gauge of the currency against its 10 major peers, added 0.2 per cent after falling 0.9 per cent Monday, extending its slump from the highest level since at least 2004 to about 3 per cent. The yen was little changed at 119.73 per dollar after climbing for a second day.

Yields on 10-year U.S. Treasuries were little changed at 1.92 percent after slipping two basis points, or 0.02 percentage point, on Monday after Fischer's remarks to the Economic Club of New York. Williams, who votes on policy this year, said in remarks prepared for delivery in Sydney Tuesday that a discussion should happen mid-year about tightening policy, even as he lowered his economic growth forecast.

"Fischer's comments have had a considerable impact on markets amid the market sentiment that has turned against the dollar since last week's Fed meeting," said Keisuke Hino, a foreign-exchange trader at Mizuho Bank Ltd. in New York. "The one-sided dollar buying scenario has crumbled so there is still scope for more dollar selling." The comments came after Cleveland Fed President Loretta Mester said in a Bloomberg TV interview in Paris that it will be appropriate to raise rates this year. St. Louis Fed President James Bullard also speaks this week.

Rates Discussion "I think that by mid-year it will be the time to have a discussion about starting to raise rates," Williams said, altering the phrase from "serious discussion" that he used in a March 5 address in Honolulu. "I'm not making a prediction about what the Fed will do; I am saying that in my view, it would be appropriate to start weighing the pros and cons of taking action at that time." West Texas Intermediate crude gained 1.9 percent Monday to its highest close in more than a week. While the dollar's retreat boosts the appeal of commodities priced in the U.S. currency, a report on American oil stockpiles due Wednesday is projected to show supplies extended gains at a record last week, according to a Bloomberg survey of analysts.

The U.S. oil benchmark fell 0.5 per cent to US$47.22 a barrel in New York Tuesday. Brent, the contract for more than half of global oil, was little changed at $55.84 a barrel in London.