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Asia300

Asian stocks decline on bets China may hold off on rate cuts

Mainland banks, insurers among biggest contributors to A300 loss

HONG KONG (Nikkei Markets) -- Asian shares outside of Japan fell Thursday as some investors bet that the latest China inflation data reduced the urgency for the People's Bank of China to cut interest rates.

The Nikkei Asia300 Index of companies outside Japan declined 0.7% to 1,360.78. Chinese lenders and insurers were amongst the biggest contributors to the losses on the A300. Hong Kong-listed shares of Agricultural Bank of China, down 1.9%, paced losses among banks, while China Life Insurance and Ping An Insurance Group declined by 1.8% or more. An index of Chinese companies listed in Hong Kong tumbled 1.2%, and the Shanghai Composite declined 1.6%.

The losses on shares of Chinese companies came after data showed that the producer prices in Asia's largest economy rose by 0.4% on-year in March, up from 0.1% in the prior month. Consumer prices climbed 2.3%, compared with 1.5% in February.

"China's inflation data for March indicate that the supply shocks faced on the consumer and producer fronts have helped to mitigate deflationary risks," ANZ Research said in a note. While the producer price data bodes well for China's monthly activity data next week, a "decreased risk of deflation will reduce the urgency faced by China's central bank to cut interest rates, and any RRR (reserve requirement ratio) cut will be driven by market liquidity conditions."

Meanwhile, U.S. inflation data released yesterday and minutes of the Federal Reserve March meeting suggested that interest rates in the world's largest economy were unlikely to rise in the coming months.

A measure of U.S. inflation, closely watched by the Fed, increased less than expected, prompting 10-year Treasury yields to decline to near 2.47%. Core U.S. consumer prices, which excludes volatile components like food and energy, rose by 0.1% month-on-month in March, compared with the 0.2% increase expected by economists polled by Reuters. The headline U.S. inflation index increased by 0.4% on-month and by 1.9% on-year.

The data supported Fed's current stance that tame inflation allowed it flexibility in charting monetary policy. The Fed at the March meeting indicated that it was unlikely to raise rates this year and minutes of that meeting, released yesterday, reinforced the dovish outlook.

In other major movers on the A300, Hong Kong listed Chinese social media major Tencent Holdings rose 0.7% after a Chinese regulator approved one of its games for monetization.

Hon Hai Precision Industry added 1% after the Taiwanese assembler of the iPhone reported an 8% increase in March sales.

MediaTek slipped 2.8%. The Taiwanese fabless semiconductor company reported an 11% increase in March sales, a tad slower than the prior month.

Wipro edged 0.1% higher after the Indian software exporter said it will consider a share buyback proposal at a board meeting next week.

--Nimesh Vora

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