Asia shares pare losses as China inflation in line

Asian shares mostly slumped on Friday as a tense situation in Ukraine made investors cautious, though a tame inflation report from China calmed some nerves. -- FILE PHOTO: REUTERS 
Asian shares mostly slumped on Friday as a tense situation in Ukraine made investors cautious, though a tame inflation report from China calmed some nerves. -- FILE PHOTO: REUTERS 

TOKYO (Reuters) - Asian shares mostly slumped on Friday as a tense situation in Ukraine made investors cautious, though a tame inflation report from China calmed some nerves.

The euro remained on a shaky footing after tumbling overnight when European Central Bank President Mario Draghi said the central bank might act to stem slowing inflation and boost the euro zone economy.

MSCI's broadest index of Asia-Pacific shares outside Japan was down 0.1 per cent, on track for a slight weekly loss, but off session lows after data showed China's inflation in April was broadly in line with expectations.

Chinese consumer prices rose 1.8 per cent in April from a year earlier while producer prices fell 2.0 per cent.

"We expect producer price inflation to remain negative in coming months. The mini-stimulus measures already rolled out by the government are not enough to stop the dip in activity, and we think more pro-growth measures will be unveiled," said Li Huiyong, an economist at Shenyin & Wanguo Securities in Shanghai.

Japan's Nikkei stock average erased earlier losses and added 0.7 per cent as investors covered short positions ahead of the weekend. The Nikkei was still set to post a weekly loss of more than 2 per cent.

Markets also kept a wary eye on the Ukraine crisis. Pro-Moscow separatists in eastern Ukraine ignored Russian President Vladimir Putin's call to postpone a referendum on self-rule, declaring they would go ahead on Sunday with a vote that some fear could lead to war.

US stocks mostly fell on Thursday with the Nasdaq Composite ending lower for a third straight session, its longest losing streak since early April.

But European shares climbed 1.1 per cent after Draghi raised the prospect of ECB action next month to spur the euro zone economy.

The euro came off a 2-1/2-year high against the dollar on Draghi's comments. It was last at US$1.3838, marginally lower on the day, and well off Thursday's high of US$1.3992, its loftiest peak since November 2011.

As Draghi's dovish comments pushed the euro down 0.4 per cent on Thursday against its US counterpart, US Federal Reserve Chair Janet Yellen did the dollar no favours.

Yellen said in testimony to a Senate panel on Thursday that the Fed is in no rush to decide the appropriate size of its balance sheet, but if it ultimately shrinks it to a pre-crisis size, the process could take the better part of a decade.

"In contrast to Mario Draghi, Janet Yellen provided very little clarity on monetary policy this week, keeping the downtrend in yields intact," Kathy Lien, managing director of FX strategy at BK Asset Management, wrote in a note to clients.