Asian stocks slid to 2004 lows on Friday and the dollar climbed as a surprising jump in a U.S. inflation gauge deepened investor fears that the Federal Reserve would raise interest rates soon. Top shares fell by almost three percent in Japan and six percent in Taiwan on concern foreign investors would scale back buying of Asian shares if U.S. borrowing costs rose. A report that Beijing will raise interest rates next month to cool its red-hot economy, which has benefited global growth, also hurt shares. An MSCI index of Asia Pacific shares outside Japan <.MSCIAPJ> was down 1.4 percent by 0300 GMT at its lowest level since December 31. After a market holiday on Thursday, Japan's Nikkei <.N225> had dropped 2.7 percent by midday to 11,684.11, tracking a fall on Wall Street after data showed disappointing U.S. economic growth but brewing inflation pressures in the first quarter. "The market is concerned about the possibility of a near-term rise in U.S. interest rates and Beijing's recent steps to tighten bank lending," said Hiroichi Nishi, general manager at Nikko Cordial Securities' equity marketing department. Japanese shipping firm Mitsui O.S.K. Lines Ltd <9104.T> fell seven percent, joining other stocks hit by fears over China's steps to cool its economy. But Yamaha Motor Co Ltd <7272.T> rose 3.4 percent after it reported robust earnings results and a strong business outlook on Wednesday.
TAIWAN DIVES
Taiwan shares <.TWII> plunged 5.6 percent as technology stocks mirrored losses in their U.S. peers. Contract microchip makers TSMC <2330.TW> and UMC <2303.TW> fell more than six percent. South Korean shares <.KS11> fell 1.5 percent on fears that steps to cool China's economy will curb its voracious appetite for raw materials. Steel maker POSCO Co Ltd <005490.KS> sank 1.7 percent. Australia's benchmark index <.AXJO> slipped 0.1 percent, while shares in Hong Kong <.HSI> fell 0.6 percent. U.S. data showed the economy grew at a disappointing rate of 4.2 percent in the first three months of the year. But the PCE price index -- a key gauge of inflation pressures based on personal spending -- nearly doubled, igniting fears the Fed may lift interest rates off 46-year lows to cool the world's largest economy. The spectre of credit tightening in the United States and China led to worries that a surge in commodity and global share prices in the past year might have been excessive. As of 0220 GMT, the dollar was up about 0.3 percent at around 110.15 yen . Worries about the Chinese economy and commodity prices also hit the Australian dollar, which fell 0.8 percent to around $0.7170 after a two-percent fall earlier this week, before bouncing to around $0.7214. The euro was slightly easier at $1.1972 , off a nine-day high of $1.1983 hit after Thursday's U.S. GDP data. Gold rose to $387.50 an ounce from $386.25 in New York, bouncing off a 5-1/2-month low, while U.S. oil edged up 13 cents a barrel to $37.44.
Most investors expect the Fed to raise rates from one percent some time this year, with an increasing number of economists seeing a move in September, according to a poll taken after Thursday's data. Although an endorsement of economic recovery, a rate rise would be seen as a watershed for many investments. Fears of a rate rise pulled the Dow Jones industrial average <.DJI> down 0.7 percent, while the tech-heavy Nasdaq <.IXIC> dropped 1.6 percent. Japanese government bond (JGB) prices eased as dealers hesitated to take positions between holidays next week. The yield on the 10-year benchmark cash JGB <0#JPTSY=JBTC> was up 2-Ѕ basis points at 1.550 percent.//www..com