Asian stocks drop as central bank decisions loom, STI down 0.7%

The stock quotation board at a brokerage in Tokyo, Japan.
The stock quotation board at a brokerage in Tokyo, Japan.PHOTO: REUTERS

HONG KONG (BLOOMBERG) - Renewed selling of Chinese shares dragged Asian stocks and US equity-index futures lower and helped boost the yen ahead of a two-day Federal Reserve meeting that starts on Tuesday (Oct 27).

The MSCI Asia Pacific Index fell 0.6 per cent by 12.22pm in Tokyo, while the MSCI Emerging Markets Index slid 0.7 per cent. The Shanghai Composite Index slipped 2.1 per cent after closing on Monday at the highest since Aug 21, the final trading day before the benchmark measure for China's biggest market embarked on a two-day, 15 per cent rout. The Hang Seng China Enterprises Index retreated 1.8 per cent.

Singapore's Straits Times Index was down 0.67 per cent at 3,062.53 as of 12.10pm.

The Topix index retreated 0.6 per cent. New Zealand's NZX 50 Index climbed 0.7 per cent. The South Pacific nation's benchmark equity gauge - the only major measure to advance in Asia on Tuesday - has risen for 12 days straight and is heading for a fresh record. Australia's S&P/ASX 200 fluctuated.

The euphoria that greeted China's easing measures on Friday evaporated on Monday as investors refocused on the underlying reason for the country's sixth interest-rate cut since November: slumping demand at home and abroad.

Data from China's National Bureau of Statistics showed on Tuesday that industrial companies' profit fell 0.1 per cent in September from a year before, less than the 8.8 per cent slide in August. Earnings slipped 1.7 per cent through the first nine months of 2015,

With the market assigning negligible odds of a rate increase at this week's Fed meeting, traders will keenly watch the policy makers' commentary and forecasts released on Wednesday. Economists remain split on whether the Bank of Japan will boost its already record stimulus at a meeting on Oct 30.

Standard & Poor's 500 Index contracts weakened, with the Fed projected to hold rates near zero. The Bloomberg Dollar Spot Index slipped as the yen strengthened on declining appetite for riskier assets and speculation the Bank of Japan will refrain from adding stimulus this week. US oil retreated further below US$44 a barrel.

"Traders are just sitting on the sidelines waiting to see what will happen," said Mr Angus Nicholson, an analyst at IG Markets Ltd. in Melbourne. "The Fed and the BOJ meetings this week are pivotal events that will determine whether this rally can go any higher. If we see the Fed push back raising interest rates towards 2016 and the BOJ step up stimulus, that will have a big positive impact on equities."

West Texas Intermediate oil dropped 1.3 per cent to US$43.43 a barrel, which would be the lowest closing price since Aug 27, according to data compiled by Bloomberg. Crude finished Monday's trading near the lowest closing price in almost four weeks, with West Texas Intermediate dropping 1.5 per cent to US$43.92 a barrel. Oil is failing to sustain a rally earlier this month above US$50 a barrel as surging US inventories bolstered speculation that a global glut will be prolonged.