Asian Shares Weak as China Falls--2nd Update

By Chao Deng And Brad Frischkorn 

HONG KONG--China shares fell on the latest sign of weak manufacturing activity in that country, while concerns about global growth kept pressure on much of the rest of the region.

The Shanghai Composite Index finished down 2.6% at 3128.30, while Hong Kong's Hang Seng Index slipped 0.1% to 24484.74, after a final gauge of manufacturing activity for January by HSBC Holdings PLC inched higher, but still indicated a contraction from the previous month.

A separate reading by the government fell to a weaker-than-expected level, marking the first contraction since September 2012, official figures showed Sunday.

Shares of China Minsheng Banking Corp. were down more than 3% in both Hong Kong and Shanghai, after the privately owned lender said its president, Mao Xiaofeng, resigned for personal reasons. A local financial magazine reported that Mr. Mao had been questioned by Beijing's antigraft agency as part of a broad campaign to root out corruption.

China's yuan dropped to its weakest in over eight months against the U.S. dollar on the guidance of the country's central bank amid speculation that the bank could widen the currency's trading band, paving the way for further depreciation.

The rest of Asia was mixed after Wall Street and the dollar dropped following Friday's disappointing U.S. gross domestic product figures for October-December.

Weaker U.S. growth would undercut the Federal Reserve's assessment of the economic recovery, one factor it uses to guide its decision about when to raise interest rates. Higher U.S. rates would increase returns on assets denominated in dollars, bringing more investors to the currency.

Japan's Nikkei Stock Average was down 0.7% at 17558.04, Korea's Kospi index gained 0.2% to 1952.68, and Australia's ASX/200 was up 0.7% at 5625.30, its highest level since last September.

Losses in Tokyo tracked the fall in U.S. stocks. Treasury yields and the dollar fell sharply--negatives for currency-sensitive Japanese exporters that rely on a higher dollar for improved profitability.

The greenback recovered slightly in Asia, helping Japanese stocks come off its lows for the day. The U.S. dollar was last at Yen117.59.

"The GDP figures weren't that bad, but there is a sense of deceleration in the U.S. economy, which is in turn reflected in weaker bond yields," said Takashi Hiroki, chief strategist at Monex. "Without higher rates to prop up the dollar, further yen weakness--a key component to Japan stock investing--will be arrested."

Japanese markets are in the middle of the earnings season. Honda Motor Co. Ltd. was up 3.3% after reaping Yen44 billion in currency gains amid a weakening of the local currency last year. Still, the car maker's net profit for the quarter ended December fell 15% from a year earlier, in part from an airbag-related recall. Some analysts said the weak results represented a fundamental bottom for Honda, finding a silver lining to the end of the air-bag saga, and a solid pipeline of attractive models.

Cosmetics maker Shiseido fell 5.3% after booking third-quarter results showing operating profit fell sharply from a year earlier to Yen7.9 billion, missing estimates.

In Australia, investors appeared to shrug off data from China, the country's largest trading partner, while expecting that the country's reserve bank will lower interest rates when its policy-making board meets for the first time this year. The market is now pricing in a 69% chance of a rate cut on Tuesday, according to brokerage IG.

--Vera Sprothen contributed to this article.

Write to Chao Deng at [e-mail] and Brad Frischkorn at [e-mail]

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