Japan, China shares fall after rate rise

People look at an electronic board at a brokerage house in Shanghai December 27, 2010. China's key stock index ended down 1.9 percent on Monday, wiping out an earlier 1.5 percent gain, as investors dumped property, financial and energy shares on concerns about their longer-term outlook after a short-lived relief rally in the morning.

Credit: Reuters/Aly Song

By Alex Richardson

SINGAPORE | Tue Dec 28, 2010 1:11am EST

SINGAPORE (Reuters) - Shares in Japan and China eased on Tuesday as concerns that further Chinese monetary tightening will cool the engine of world economic growth overshadowed Japanese data that pointed to improving demand.

The euro spiked against the dollar, although market players attributed its strength to technical factors in light holiday trade, and oil edged up near a 26-month high as a snow storm in the U.S. northeast underpinned demand expectations.

Data from Japan showed factory output rose for the first time in six months in November and a survey of manufacturers revealed they expected to boost production in the coming months to meet firm demand from the rest of Asia.

"Data in recent weeks have been supportive of the stocks and commodity markets globally," said David Cohen, director of Asian economic forecasting at Action Economics.

"The U.S. will avoid a double-dip. The Asian region including Japan looks a little bit better, with its industrial production finally showing an increase."

But despite some positive signs on the outlook, investors entering thin year-end trading remained concerned about Chinese monetary policy tightening in the months ahead.

The timing of China's Christmas Day interest rate rise may have surprised but the move itself did not, with Chinese leaders pledged to make fighting inflation a priority in 2011.

World shares mostly fell on Monday in response to the move, as investors fretted that tighter monetary policy would moderate the growth that many are relying on to support the global economic recovery.

On Tuesday, MSCI's broadest index of Asia shares outside Japan, which is up nearly 13 percent for the year, rose 0.1 percent.

But Shanghai shares fell 1 percent, after a 2 percent drop the previous day, and Tokyo's Nikkei shed 0.6 percent.

"Investors locked in profits as Shanghai shares fell in late trade yesterday," said Kazuhiro Takahashi, general manager at Daiwa Capital Markets. "They didn't want to buy further as uncertainty remained for Chinese shares."

With Australian markets closed for a holiday the main stock gains in Asia were in South Korea, where the benchmark index rose 0.6 percent, led by a 1.7 percent rise for Samsung Electronics.

U.S. stocks finished little moved on Monday, with the Dow Jones industrial average down 0.2 percent but the Nasdaq Composite 0.1 percent firmer.

EURO JUMPS

The euro rose sharply as bears who had been betting on further weakness due to worries about the continent's sovereign debt crisis were forced to abandon their positions.