Asian stocks extend global drop on Greek deadlock

A woman walking in front of an electronic board displaying stock price index in Tokyo. - See more at:
A woman walking in front of an electronic board displaying stock price index in Tokyo. - See more at: REUTERS

TOKYO (BLOOMBERG) - Japanese stocks drove declines in early Asian trading, extending a global-equity retreat amid ongoing concern Greece will fail to secure a debt deal. Chinese index futures signaled gains on plans to scrap a limit on bank lending.

The MSCI Asia Pacific Index dropped 0.1 per cent by 9:30 a.m. in Tokyo, with Japanese stock gauges retreating from their highest levels since at least 2007. Australian and Korean equities also fell.

Greece's prime minister will resume talks with creditors early Thursday after negotiations among euro-area finance ministers failed to result in an agreement on bailout aid for the indebted nation.

China intends to remove a limit capping commercial banks' loans at 75 per cent of deposits, according to a draft law amendment posted online after markets closed Wednesday. The proposal, which needs to be approved by the legislature, boosts banks' flexibility to manage lending.

"I'm concerned selling will accelerate over the session as investors locally start to anticipate further pressure on European markets tonight," Michael McCarthy, chief market strategist at CMC Markets in Sydney, said by phone. "What we're looking at now is a classic European fudge. There will be some temporary bridging to get through the IMF payment next Tuesday, and we then start anticipating the next major deadline."

Technical teams will convene at 6 a.m. in Brussels, followed at 9 a.m. by the resumption of negotiations between Prime Minister Alexis Tsipras, International Monetary Fund chief Christine Lagarde, European Central Bank President Mario Draghi and European Commission President Jean-Claude Juncker.

Germany downplayed the chances of an imminent agreement on Wednesday after Greece rejected the a set of terms from creditors. The downbeat tone from Berlin reinforced the brinkmanship at play, with Greece facing a June 30 deadline to repay about 1.5 billion euros to the IMF.

Chinese stock futures foreshadowed gains, with contracts on the CSI 300 Index up 1.8 per cent, and an exchange-traded fund that tracks the gauge climbing 1.1 per cent in New York. Futures on Hong Kong's Hang Seng China Enterprises Index, a measure of mainland stocks listed in the city, added 0.1 per cent. The yuan was little changed in offshore trading at 6.2047 per dollar.

The proposal to ease lending restrictions "will be seen as an ongoing message from the government that they are prepared to take measures to support the economy," Tony Hann, head of emerging markets at Blackfriars Asset Management Ltd. in London, said by phone. "The market will take that positively. The first reaction will be that this is seen as supportive of the banks."

The U.S. economy shrank less than was previously reported in the first quarter, data released Wednesday showed, with gross domestic product contracting at a 0.2 per cent annualized rate, compared with an earlier projection for a 0.7 percent drop. The Federal Reserve indicated last week that it would take a gradual approach to raising interest rates amid prospects the economy's recovery is uneven.