Asian market sell-off picks up pace, Shanghai tumbles

The People's Bank of China cut the amount of cash lenders must keep in reserve in a bid to support the stuttering economy. (Photo: AFP/Mark Ralston)

Shanghai led the retreat as mainland investors returned from a week-long break, during which time China was accused of using microchips in computer equipment sold in the US as part of a drive to steal technology secrets.

The losses in China also came despite a cut in the amount of cash the country's commercial banks must keep in reserve, which its central bank says will pump more than US$100 billion into financial markets.

Dealers were given a negative lead from Wall Street, where all three main indexes ended with sharp losses following news that unemployment had hit a 49-year low and wages saw healthy gains.

The report, which followed a slew of strong indicators on the world's top economy, saw yields on benchmark 10-year Treasuries rise for the third straight day, hitting a fresh seven-year high with the Fed expected to stick to its rate hike drive.

Analysts said the sudden surge in interest rates had deepened worries about higher inflation and an uptick in costs for loans and mortgages.

Richard Jerram, chief economist at Bank of Singapore, said while the Fed would not be panicked by the increase in wages "evidence that tight capacity conditions - such as a low unemployment rate - are pushing prices higher will keep them on the current tightening path.

"Another rate hike in December seems very likely, and we expect four more in 2019."

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The losses in New York seeped into Asia, where Shanghai sank 3.7 per cent, while Hong Kong lost 1.4 per cent with property firms hit by expectations the city's banks will lift mortgage rates again as they track a likely Fed hike.

The Hang Seng has lost more than five per cent over the past five trading days.

Sydney retreated 1.4 per cent, Singapore eased 0.9 per cent, and Taipei and Seoul were each 0.6 percent lower.

Tokyo was closed for a public holiday.

Chinese dealers were playing catch-up with sharp losses last week, when Bloomberg reported that Beijing inserted microchips into equipment made in China for Amazon and Apple, and possibly for other companies and government agencies.

It claimed a unit of the People's Liberation Army was involved in the operation that looked to steal tech secrets. Mainland tech firms tumbled across the board, while companies in Hong Kong and Taipei including Lenvo and Taiwan Semiconductor Manufacturing also extended Friday's sharp losses.

The selling trumped news that the People's Bank of China had lowered the required reserve ratio (RRR) as it looks to shore up the economy after a series of weak data, while it also battles a long-running trade row with the United States.

However, Stephen Innes, head of Asia-Pacific trading at OANDA, said: "It's not too much of a stretch to assume markets should expect more policy easing measures and increased infrastructure spending. The RRR cut will help but the China economy will need more monetary policy persuasion to snap its current funk."

Oil prices fell after the crown prince of major producer Saudi Arabia said it could access spare capacity to fill in for any shortages from Iran when US sanctions are imposed on the country next month.

Adding to the weakness were reports that Washington was holding discussions with countries that want to carry on buying crude from Iran past the Nov 4 imposition of sanctions.

"It's still a wait-and-see as to how much production will be boosted, so investors are likely to be cautious and trade in a narrow range until we get some more clarity next month," Will Yun, a commodities analyst at Hyundai Futures, told Bloomberg News.

In early European trade London fell 0.4 per cent, while Paris and Frankfurt each shed 0.7 per cent.

- Key figures around 0810 GMT -

Hong Kong - Hang Seng: DOWN 1.4 per cent at 26,202.57 (close)

Shanghai - Composite: DOWN 3.7 per cent at 2,716.51 (close)

Tokyo - Nikkei 225: Closed for a holiday

London - FTSE 100: DOWN 0.4 per cent at 7,293.19

Euro/dollar: DOWN at US$1.1487 from US$1.1520 at 2050 GMT on Friday

Pound/dollar: DOWN at US$1.3056 from US$1.3115

Dollar/yen: UP at ¥113.74 from ¥113.66

Oil - West Texas Intermediate: DOWN 73 cents at US$73.61 per barrel

Oil - Brent Crude: DOWN US$1.05 at US$83.11 per barrel

New York - Dow Jones: DOWN 0.7 at 26,447.05 (close)