Asia shares sluggish in early trade, China stimulus in focus

TOKYO (Reuters) - Asian shares dipped in early trading on Monday after a weak performance on Wall Street, though China's latest stimulus to shore up the world's second-largest economy was likely to underpin sentiment.

China's central bank on Sunday cut the amount of cash that banks must hold as reserves, the second industry-wide cut in two months, adding more liquidity to bolster slowing growth.

"It seems that the 'excess liquidity' created by the U.S. Fed is now being augmented by money from China as the capital account is liberalized," said Sean Darby, global equity strategist at Jefferies, in a note to clients.

MSCI's broadest index of Asia-Pacific shares outside Japan was down about 0.1 per cent, after ascending to a fresh seven-year peak. Japan's Nikkei stock index percent was 0.6 per cent lower, after shedding 1.3 per cent last week.

Chinese regulators said on Friday, after mainland markets had closed, they would allow fund managers to lend shares for short-selling, and would also expand the number of stocks investors can short sell, in a bid to raise the supply of securities in the market.

Institutional investors including mutual fund companies and asset management businesses of securities firms are encouraged to lend stocks because the "margin financing business has been growing rapidly, but the business of short-selling has been developing slowly," the Shanghai and Shenzhen stock exchanges said in a statement.

On Friday, major U.S. stock indexes ended with daily and weekly losses over 1 per cent, dragged down by the trading regulations changes in China, renewed worries about Greece, and tepid U.S. corporate earnings.

France's central bank chief said Greek banks may soon run out of collateral to access European Central Bank refinancing unless Athens reaches an agreement with the European Union and International Monetary Fund on economic reforms.

The euro edged up about 0.1 per cent in early Asian trade to US$1.0809, off Friday's high of US$1.0849.

The U.S. dollar inched down about 0.1 per cent against its Japanese counterpart to 118.82.

Crude oil was higher as Middle East turmoil and signs of lower U.S. production lifted prices. The leader of Yemen's Iranian-allied Houthi militia accused Saudi Arabia on Sunday of plotting to seize the country.

Brent added 1.1 per cent to US$64.16 a barrel, while U.S. crude rose 1 per cent to US$56.31.