* MSCI Asia ex-Japan inches down 0.1 pct, Nikkei hits 6-week
low
* Euro hovers near 2-year low vs dollar
* HSBC China flash PMI at 5-month peak on output bounce
* Spanish bill auctions eyed
By Chikako Mogi
TOKYO, July 24 (Reuters) – Asian shares were capped on
Tuesday after the previous day’s deep losses as a surge in
Spain’s borrowing costs, to levels seen as unsustainable,
triggered alarms indebted regions could push the euro zone’s
fourth-largest economy to seek a bailout.
The euro was not far from a two-year low against the dollar
and a near 12-year low against the yen, as the single currency
was undermined by Moody’s Investors Service changing its ratings
outlook to negative for Aaa-rated Germany, the Netherlands and
Luxembourg amid Europe’s ongoing debt crisis.
With market sentiment so fragile, data showing China’s
manufacturing output in July grew at its fastest pace in nine
months offered some relief, helping Asian shares trim some
earlier losses and also slightly boost the commodity-linked
Australian dollar to $1.0288 from around $1.0265.
The HSBC Flash China manufacturing purchasing managers index
(PMI) rose to 49.5 in July to its highest level since February,
driven up by a jump in the output sub-index to its best showing
since October 2011.
It is the first significant Chinese data in the third
quarter and signals that pro-growth government policies are
supporting improvement in the world’s second-largest economy.
“The data gave a slight boost to markets, but whether such
effects are sustainable are doubtful as Europe struggles with
its problems,” said Hiroyuki Kikukawa, general manager at
trading company Nihon Unicom.
“Government policies will underpin the Chinese economy over
the longer term, but in the short-term, instability in the
European situation will keep a drag, especially as Europe is a
big export market for China,” he said.
MSCI’s broadest index of Asia-Pacific shares outside Japan
eased 0.1 percent, after tumbling 2.4 percent on
Monday for its biggest one-day drop in about two months, while
Japan’s Nikkei stock average lost 0.4 percent and
slipped to a six-week low.
Hong Kong’s stock market will resume trading at 0500 GMT
after the morning session was cancelled due to Typhoon Vicente.
The euro was at $1.2123, off a 25-month low of
$1.2067 hit on Monday, and stood at 94.87 yen, barely
above its lowest since November 2000 of around 94.23 yen
marked on Monday.
Fears about Spain possibly needing a fully-fledged bailout
intensified investor flight to safety and pushed the 10-year
U.S. Treasury yield down to a record low 1.3977
percent, while five- and 10-year German government bond yields
also set new lows on Monday.
In contrast, Spanish 10-year borrowing costs
surged to a euro-era high above 7.5 percent on Monday.
Andrew Wilkinson, chief economic strategist at Miller Tabak
& Co in New York, said the flattening of the Spanish yield curve
reflected how investors have grown increasingly concerned about
perceived risks facing Spain.
“Rising yields are in turn adding to a sense of crisis: If
the regions ask for cash, how will the government fund itself?
The brave Spanish matador appears to be pinned to the perimeter
fence by the angry bull,” Wilkinson said.
Spain faces a crucial litmus test later on Tuesday with its
debt sale of 3 billion euros in 3- and 6-month bills.
GREECE ENTERS AGAIN
Greece, which only last month averted a crisis by having
pro-bailout parties win an election, is scheduled on Tuesday to
meet its troika of creditors — the European Union, European
Central Bank and the International Monetary Fund — to
renegotiate rescue payments which are crucial to keeping
indebted Athens afloat and within the euro zone.
The uncertainty over whether Greece could convince creditors
to secure the funds compounded fears Madrid’s funding crisis
could accelerate after Spain’s central bank said on Monday the
economy sank deeper into recession in the second quarter.
Euro zone’s manufacturing data is also due later on Tuesday.
Various gauges for stress on Monday reflected mounting
market nervousness about financial contagion from the fiscal
woes in Spain and Greece, pushing risk premiums on dollar
funding wider and lifting the CBOE Volatility index,
which measures expected volatility in the Standard & Poor’s 500
index over the next 30 days, up 14.4 percent to 18.62.
The general risk aversion weighed on Asian credit markets,
sending the spread on the iTraxx Asia ex-Japan investment-grade
index wider by 4 basis points.
Oil steadied after Brent fell more than 3 percent and U.S.
crude fell 4 percent on Monday. Brent crude futures was
up 0.2 percent at $103.48 a barrel while U.S. crude stood
flat around $88.16 a barrel on Tuesday.
