Asian shares pressured by deepening Greek turmoil

Asian shares remained under pressure on Monday after talks to form a Greek government failed, with China's latest move to loosen monetary policy only adding to investor risk aversion as it underscored how Europe's plight is hampering global growth.

European shares will likely slide, with financial spreadbetters predicting that major European markets would open down as much as 1% . US stock futures were down 0.2%. MSCI's broadest index of Asia-Pacific shares outside Japan fell as much as 0.6% to its lowest in nearly four months, before recovering to stand down 0.1%. It shed more than 1% on Friday for its biggest weekly loss since late November, of 4.5%. Its materials sector was the biggest decliner in MSCI's pan-Asian stock index, falling 0.6%. Oil and copper eased on concerns over demand outlook, shrugging off China's weekend move to cut the amount of cash that banks must hold as reserves as merely responding to a series of recent weak data, with analysts seeing more policy action ahead to support domestic demand. The euro fell to its lowest in nearly four months at USD 1.2878 and the Australian dollar fell below parity to a five-month low, dropping as far as USD 0.9996, undermined by growing growth concerns in China, Australia's biggest export destination. Risk aversion will likely benefit the dollar and the yen and keep the dollar/yen pair in tight ranges, but weigh on dollar and yen cross-pairs. "With the situation in Europe going from bad to worse, the market is questioning whether a late, band-aid response from China is going to mend battered confidence," said Park Ok-hee, an analyst at IBK Securities. After fruitless talks on Sunday, Greek President Karolos Papoulias will continue discussions with the country's political leaders on Monday evening to try to form a government, a senior official said. The president must call a new election if a compromise is not reached, putting Athens closer to the brink of bankruptcy and possibly out of the euro bloc. Anti-austerity momentum may possibly grow even in Germany after Chancellor Angela Merkel's conservatives suffered a crushing defeat on Sunday in an election in the country's most populous state. Japan's Nikkei share average inched up 0.2%. TURN AWAY FROM RISK Investors have been cutting back their risk asset holdings, as the euro zone plunged into a fresh round of uncertainty after anti-austerity camps won elections in Greece and France earlier this month. Friday's data from the Commodity Futures Trading Commission showed hedge funds and other money managers slashed their long positions on commodities by 20%, or nearly USD 18 billion, as prices fell to four-month lows last week, with oil accounting for the bulk of the drop. "It's risk-off everywhere you look," said Yuji Saito, director of the foreign exchange division at Credit Agricole Bank in Tokyo. "Currencies may hold steady having hit the lows earlier, but remain vulnerable to headlines out of Europe, while JPMorgan's news could spur speculation about tighter financial regulations and prompt investors to reduce risk assets," Saito said. The USD 2 billion trading loss by JPMorgan Chase & Co, the largest US bank by assets, raised fresh worries about the financial sector, pushing Wall Street's KBW bank index down 1.2% on Friday. Fitch Ratings cut JPMorgan's credit rating one notch and Standard & Poor's revised its outlook on JPMorgan to "negative." JPMorgan's case raises serious questions about how attuned regulators were to the botched derivatives trade, and may force the Federal Reserve, JPMorgan's primary regulator, to do damage control, possibly by strengthening its scrutiny of investment banking. CHINA ADDS TO RISKS US crude prices slipped 0.4% to USD 95.71, weighed down by China's slowing economy, which clouded the demand outlook, and Brent crude eased 0.3% to USD 111.88 a barrel. Copper fell 0.8% to USD 7,953 a tonne. China's central bank cut the bank's reserve requirement ratio (RRR) by 50 basis points to 20.0% on Saturday, freeing an estimated 400 billion yuan for lending to head off the risk of a sudden slowdown in the world's second-largest economy. "In this environment, the RRR cut is not bullish," said a Singapore-based copper trader. China may need a back-up plan to stop economic growth being cut short by a surprise dip in demand at home and abroad. Monetary policy easing steps taken since the final quarter of last year might be insufficient to deal with the downturn, analysts say. "April data reconfirmed our view that the first quarter was not the bottom. We are still looking for two more 50 bp RRR cuts this year, with the next one likely in June," said Societe Generale analyst Wei Yao. Asian credit markets weakened in tandem with general risk aversion, pushing the spread on the iTraxx Asia ex-Japan investment-grade index wider by 7 basis points.