Asian shares slump, US dollar gains as Fed chief Yellen revives rate talk; STI down 0.4%

A man stands in front of an electronic board displaying share prices at a securities exchange house in Shanghai, China.
A man stands in front of an electronic board displaying share prices at a securities exchange house in Shanghai, China.PHOTO: BLOOMBERG

TOKYO (REUTERS) - Asian shares slumped on Friday (Sept 25), while the US dollar firmed after Federal Reserve Chair Janet Yellen suggested the central bank is still on track to raise interest rates later this year.

MSCI's broadest index of Asia-Pacific shares outside Japan gave up early gains and was down about 0.2 per cent. It was on track for a weekly loss of over 4 per cent after markets were roiled by a survey showing China's factory activity fell to its weakest since 2009.

The Straits Times Index was trading down 0.4 per cent at 2,834.46 as of 2:48 pm.

But financial spreadbetters expected European shares to open higher, with Britain's FTSE 100 seen up as much as 1.2 per cent, Germany's DAX as much as 1.5 per cent and France's CAC 40 1.2 per cent, though major indexes could still end the week with losses.

Volkswagen shares will be in focus again in the wake of the company's US emissions test rigging scandal.

The expected opening gains in Europe are mostly due to short sellers covering positions ahead of recent lows, said Jonathan Sudaria, dealer at Capital Spreads.

"There's nothing particularly bullish out overnight, in fact Asian markets have recommenced their sell off and Janet Yellen has soured the mood by practically confirming that a rate hike will be coming before year end," Mr Sudaria said in a note.

US stock futures were up about 0.4 per cent, also suggesting calmer trading later in the global session.

Japan's Nikkei ended a volatile session up 1.8 per cent, but still gave up more than 1 per cent in a holiday-shortened two-day trading week.

Data before the open showed Japan's core consumer prices marked the first annual drop since the central bank deployed its massive stimulus programme more than two years ago.

The data came a day after Prime Minister Shinzo Abe declared that Japan was no longer in deflation as he laid out his new three arrows of "Abenomics." Japan's government also cut its economic assessment and highlighted external risks posed by China and a US interest rate hike.

Ms Yellen, speaking a week after the Fed delayed a long-anticipated rate hike, said she and other Fed policymakers do not expect recent global economic and financial market developments to significantly affect the central bank's policy.

Ms Yellen struggled to finish a speech at the University of Massachusetts at Amherst due to dehydration, for which she received medical attention. But she attended a dinner event as planned, a university spokesman said.

The euro tumbled about 0.6 per cent to US$1.1164 from around US$1.1230 before Ms Yellen's speech, while the US dollar was up around 0.2 per cent at 120.32 yen, from around 120.00 yen.

"Despite what Yellen said, there is still no guarantee that the Fed will hike rates this year. As such, the dollar is likely to lack clear direction," said Masafumi Yamamoto, senior strategist at Monex in Tokyo, who expects the pair to stick to a 118-122 yen range for a while.

The dollar index, which tracks the US currency against a basket of six major counterparts, was up 0.4 per cent at 96.318.

Federal fund futures contracts for January fell to as low as 99.735 in price, pricing in more than 50 per cent chance of a rate hike by the end of this year, before erasing losses.

Stocks around the world fell for a fifth day on Thursday, sliding towards two-year lows as worries lingered over global economic growth and as Volkswagen's emissions test scandal rattled European carmakers.

The Brazilian real bounced back sharply after hitting a record low of 4.2482 to the dollar, after the head of the Brazilian central bank vowed to use all instruments in its arsenal to curtail the real's collapse.

The real last stood at 3.9363 per dollar, rising 6.1 percent on the day.

In commodities, crude oil futures held on to overnight gains after rising as much as 1 per cent after an estimate of inventory draws at a key US delivery hub. US crude was up about 1 per cent at US$45.34 a barrel, while Brent was rose 0.8 per cent to US$48.56.