Asian share markets tumbled on Thursday after a second big sell-off in commodities in less than a week curbed investor appetite for riskier investments and boosted the US dollar, while a short-lived recovery in oil prices was wiped out in late trade.
Global markets have been regaining ground since a near-record fall in commodities last week, but remain skittish as investors mull issues ranging from a possible Greek debt restructure to the extent of a cooling economy in China as it tackles inflation.
"It is my judgment that the Chinese economy is slowing down more than people realise," Jim O'Neill, chairman of Goldman Sachs Asset Management, said at a news briefing in Hong Kong. O'Neill, known for coining the term BRIC economies, added that by contrast there were no real signals of a US slowdown.
Weaker-than-expected growth data from China and an unexpected rise in gasoline stocks saw oil prices tumble more than 4 percent on Wednesday, triggering a rout across the commodities complex that pushed the Reuters/Jeffries CRB index, a broad measure of commodities performance, down 3%.
Oil prices initially recovered ground on Thursday as investors in Asia focused on strong demand growth. US crude futures rose more than USD 1 but eased back in late trade to be flat around USD 98.18. Brent crude turned slightly negative at USD 112.42. US oil prices are down more than 13% on last Monday's close.
China's weaker-than-expected industrial output data led some investors to worry about a sharp slowdown and reduced demand for commodities, while others felt it would ease the need for further aggressive tightening.
European stocks were set to fall on Thursday, trimming gains made in the past two sessions as a renewed retreat in commodities was seen hurting shares of heavyweight mining firms.
Investor sentiment was also hurt by Cisco's warning that it will fare worse this quarter than analysts had feared, and unveiled plans for global job cuts as the group struggles to revive growth.
"Markets are worried about high commodity prices, higher inflation, lower consumer spending power, rising interest rates and potential downward GDP growth forecasts especially for Japan, the euro zone and the UK in the near future, while QE2 is coming to an end," said Derek Lawless, head of WorldSpread France.
Energy and resource stocks led Asian share markets lower with Japan's benchmark Nikkei 225 down 1.5% by 0600 GMT. Australia's S&P/ASX 200 slipped 1.6% to a six-week low, and Hong Kong's Hang Seng was down 1.1%, while MSCI's index of Asia Pacific shares outside Japan fell 1.8%.
Miners BHP Billiton and Rio Tinto fell more than 2% in Australia, while Japan's biggest oil and gas developer Inpex Corp fell 3.6%.
Shanghai copper fell as much as 2% on Thursday after London copper hit its lowest level since December.
Bucking the trend, Toyota Motor Corp jumped 3% after saying that output would begin recovering as much as two months earlier than it had expected as parts makers come back on line, offsetting poor quarterly earnings.
The euro was steady in Asia after falling to a six-week low against the yen and a three-week low versus the US dollar on further speculation that Greece will eventually need to restruture its debt.
The broader safe-haven recovery in the dollar was reflected in its rise against a basket of currencies from a three-year low hit last week. The dollar held steady in Asia around 75.3.
"People have been doing dollar-carry trades and yen-carry trades based on a moderate recovery in the global economy. That money is now flowing back," said Makoto Noji, a senior strategist at SMBC Nikko Securities.
Already hurt by a sell-off in commodity linked currencies, the Australian dollar tumbled more than 1 percent to a one-week low after surprisingly weak Australian jobs data reduced market expectations of a rate hike.
Gold pared early gains to be flat in late Asian trade around USD 1,499.65, while volatile spot silver eased slightly to add to a loss of nearly 9% in the previous session, despite earlier gaining more than 2%.
Analysts said signs of a slowdown in China were bearish for precious metals, while other factors supporting the market were also receding, including unrest in the Middle East, high oil prices and dollar weakness.
US corn futures were flat after a 4% plunge on the expectation of higher near-term stocks due to reduced export demand, while wheat was also steady.