HONG KONG (REUTERS) - Asian stocks started a new month on a cautious note on Monday (Feb 1), with the Bank of Japan's surprise policy easing sparking some buying but further signs of economic weakness in China and a fall in oil prices keeping investors on guard.
The US dollar continued to benefit from the growing monetary policy divergence between the US and its counterparts in Europe and Asia while bonds, especially investment grade debt, received a boost after Japan's surprise decision to introduce negative interest rates last week.
MSCI's broadest index of Asia-Pacific shares outside Japan edged up 0.2 per cent, after losing 8 per cent in January.
Australia and Japan led regional markets with gains of more than 1 per cent each, while Chinese stocks slipped in early trade.
The Straits Times Index was down 0.29 per cent at 11.09am.
"In the short term, the surprise move by Japan will be a catalyst for global equities but it only underlines the weakness of the global economy and we need to see some strong economics data for a sustainable rally," said Cliff Tan, head of global markets research with Bank of Tokyo-Mitsubishi UFJ.
Monday's batch of economic data from China added to worries about the health of the world's second-largest economy and only increased calls for more policy easing from China.
Activity in China's manufacturing sector contracted at its fastest pace in almost three-and-a-half years in January, missing market expectations, while growth in the services sector slowed, official surveys showed on Monday.
"As deflationary pressures remain high, further reserve requirement cuts are still needed to support the slowing economy and permanently inject liquidity into the market," ANZ strategists wrote in a note. They expect a total of 200 basis points of cuts this year with a 50 basis points cut coming in the first quarter.
"In fact, refraining from further easing could risk an even weaker economy, which will then intensify depreciation expectation and capital outflows."
The Shanghai Composite Index eased 0.8 per cent in early trade, while the CSI300 index of the largest listed companies in Shanghai and Shenzhen fell 0.6 per cent. January was the worst monthly performance for the Shanghai market since the 2008 crisis with more than a 10 per cent loss.
The Bank of Japan said it would charge for a portion of bank reserves parked with the institution, an aggressive policy pioneered by the European Central Bank (ECB). Earlier in January, the ECB indicated it could cut rates further in March.
"The fact that both the BOJ and the ECB suddenly showed additional easing stance after the markets' rout suggests policymakers in Japan and Europe share concerns and take actions," said Mr Masafumi Yamamoto, chief currency strategist at Mizuho Securities, said.
In contrast, the US Federal Reserve has so far stuck to the script that it will gradually raise interest rates this year even though bets have been pared back with Federal Fund rate futures pricing in barely one hike this year.
Negative interest rates pressured the yen, which traded briefly at 121.38 to the US dollar, near six-week low of 121.70 touched on Friday.
The euro was steadier at US$1.08440.
Oil prices fell, with international benchmark Brent sliding 1.8 per cent to US$35.35 per barrel.
Still, oil has bounced more than 30 per cent from a 12-year low hit less than two weeks ago, taking some pressure off reeling global equity markets but that bounce is proving to be fleeting.
A 19-commodity Thomson Reuters/Core Commodity CRB Index , a global benchmark for commodities edged higher and up more than 8 per cent from a 13-year low hit in late January.