2013.05.2302:32:36UTC+00Asia stocks dive down after China data disappoint

Asian markets wounded on Thursday trading action, as early losses recorded on worries the Federal Reserve could downgrades its bond purchases were exacerbated by data showing Chinese manufacturing activity unexpectedly contracting in May.

Japanese shares, which had skyrocketed earlier in the day on a weakened yen, also retreated as the Chinese data hurt investor sentiment, likewise slamming regional stocks and U.S. equity futures, as well as risk currencies and commodities.

Hong Kong’s Hang Seng Index skid 1.6%, Australia’s S&P/ASX 200 slipped 2%, and Taiwan’s Taiex gave up 1.5% after preliminary HSBC results of its China manufacturing Purchasing Managers’ Index for May dropped to a seven-month low of 49.6. The Shanghai Composite Index off  by 0.8%.

The PMI reading — which was below the 50-point threshold that separates progress from deterioration in factory conditions, and also below expectation result of 50.4 — added to fears about growth momentum in the world’s second-biggest economy.

“The cooling manufacturing activities in May reflected slower domestic demand and ongoing external headwinds. A sequential slowdown is likely in the middle of [the second quarter], casting downside risk to China’s fragile growth recovery,” said HSBC chief China economist Hongbin Qu.

Japan’s Nikkei Stock Average, which had advanced as much as 2% in early trading, declined 0.6% in Tokyo afternoon trading. The broader Topix traded 1.9% lower.

South Korea’s Kospi tumbled 0.7%, while Singapore’s Straits Times Index down 0.5% even though the local economy unexpectedly expanded 1.8% on an annualized basis in the first quarter from the preceding three months.

The Chinese data also had a wider impact on investor sentiment that had already been bruised by Fed Chairman Ben Bernanke’s remarks overnight.

U.S. equity index futures gave up their gains to retreat, with Dow Jones Industrial Average futures falling 18 points to 15,302.

The Australian dollar closed to 96.32 U.S. cents from 96.62 cents before the HSBC PMI release.

July copper futures back down 1.9% from Thursday’s settlement in the U.S., while gold and oil futures also extended their declines.

Stocks in the resource sector, already under pressure in the wake of Bernanke’s comments, extended losses after the Chinese data.

Iron-ore producer Fortescue Metals Group Ltd. submerge 3.2%, and gold miner Newcrest Mining Ltd.  drifted 2.5% back in Sydney, while Korea Zinc Co. relinquished 3.4% in Seoul.

In Hong Kong, Cnooc Ltd. recorded a 2.2% decrease, and Jiangxi Copper Co. slipped 2.4%.

“Slightly firmer hints of possible scaling-back of asset purchases are negative for emerging-market sentiment, as they would limit flows into emerging-market assets and upside for exports,” said Crédit Agricole senior economist Dariusz Kowalczyk.

He was referring to Fed Chairman Ben Bernanke’s remarks Wednesday that the central bank could begin to wind down its bond purchases in the “next few meetings,” as well as similar signals from the Fed’s last policy-meeting minutes. The resulting concerns triggered a sharp pullback for stocks on Wall Street from their early highs overnight.

Financial stocks also suffered significant losses. Commonwealth Bank of Australia downgrades 2.5% in Sydney, Sumitomo Mitsui Trust Holdings Inc. drop 2.5% in Tokyo, and KB Financial Group Inc. shed 0.7% in Seoul.

Shares of China Construction Bank Corp. gave up 1.4%, and Bank of Communications Co. traded 1.9% less in Hong Kong; in Shanghai, they declined 0.8% each.

In Tokyo, losses for banks and resource stocks outweighed gains in some insurance and exporter shares.

Japanese life insurers rose after the Nikkei reported that in the fiscal year ended March 31, the yen’s weak trajectory likely helped the companies narrow their negative spreads — the difference between the returns they promised and earned.

Dai-ichi Life Insurance Co. boosted 0.8%, and T&D Holdings Inc. skyrocketed 4.7%.

Among other Tokyo majors, Fast Retailing Co. gained 3.9%, and Fanuc Corp. produced 3.1% more as the dollar hovered around ¥103 in afternoon trading.