Asian shares stumble as Chinese markets fall after Beijing tightens policy

Asian stocks dipped on Friday as Chinese markets fell after Beijing unexpectedly hiked short-term rates, adding to lingering anxiety over global growth in the wake of U.S. President Donald Trump's aggressive policies on trade and international relations.

On the first day of trading after a week-long break for the Lunar New Year, Chinese equities slipped after the People's Bank of China raised the interest rates on open market operations by 10 basis points.

Two banking sources also told Reuters it had raised the lending rates on its standing lending facility (SLF) short-term loans.

Major Chinese stock indices were down around 0.4 per cent, while the yuan currency edged higher.

The action will reinforce views that China's central bank is moving to a tightening policy bias, but analysts expect its policy lending and deposit rates to remain unchanged for now and say any further steps are likely to be gradual.

“It appears to be an intent to control a real estate bubble. It could also be aimed at arresting the yuan's depreciation," said Naoto Saito, chief researcher at Daiwa Institute in Tokyo.

“All in all, it comes across as a move to tweak interest rate levels to accompany a broader monetary policy shift,” he said.

The China news comes as a rally in U.S. equities and the dollar - the so-called “Trump trade” - continues to run out of steam, hurt by concerns about the Trump administration's tough stance on immigration, trade and aggressive posturing in international relations.

MSCI's broadest index of Asia-Pacific shares outside Japan was down 0.4 percent, pulling back from a three-month peak hit in the previous session. Australian and Japanese markets were down, while others were steady to slightly lower.

“I think the Trump trade has hit the pause button with both equity and credit markets currently factoring in a very rosy view of the U.S. economy and we need to see more evidence from the policy front before further gains are justified,” said Cliff Tan, East Asia head of global markets research at Bank of Tokyo Mitsubishi UFJ in Hong Kong.

The S&P 500 settled at levels around six weeks ago, losing steam due to lingering investor anxiety around Trump's policies.

Markets had run up sharply following Trump's Nov. 8 election win on the expectation that tax cuts, deregulation and a fiscal stimulus would accelerate economic growth.

The Federal Reserve held interest rates steady on Wednesday in its first meeting since Trump took office, but painted a relatively upbeat picture of the U.S. economy that suggested it was on track to tighten monetary policy this year.

Adding to concerns is whether the Fed would switch gears to a more hawkish stance if jobs data continued to surprise on the upside with some analysts penciling in a March rate increase if payrolls data, due later in the day, surprised on the upside. Futures were predicting a move only by June.

According to a Reuters survey of economists, nonfarm payrolls probably increased by 175,000 jobs last month, picking up from the 156,000 jobs added in December. The unemployment rate is expected to be unchanged at 4.7 percent in January, near a nine-year low.

In currency markets, the dollar was pinned near its weakest level against a basket of major rivals since mid-November amid uncertainty about the Trump's administration mixed comments on the greenback.

“The dollar has been pulled down by fear, in markets, given all the headlines,” particularly those about Iran,” said Jennifer Vail, head of fixed-income research for US Bank Wealth Management in Portland, Oregon.

The Australian dollar gave back some of its strong gains on Thursday after a record December trade surplus burnished its appeal among foreign investors. It was trading at 0.7653 per dollar after hitting a high of 0.7696 per dollar in the previous session.

Bonds were steady with ten-year U.S. Treasury yields holding firm at 2.49 percent. Credit markets remained upbeat with an index measuring performance of Asian debt denominated in U.S. dollars holding firm near three-month highs.

Oil prices edged higher as investors grew wary that the U.S. may impose new sanctions on multiple Iranian entities, firing geopolitical tensions between the two nations.

Brent crude futures had risen 28 cents, or 0.5 percent, to $56.84 a barrel by 0123 GMT, after settling down 24 cents at $56.56 in the previous session.