Risk assets hit as US, China data stirs recovery worry

MSCI's index of Asia-Pacific shares outside Japan falls 1.2%, led by a 3% slide in its materials sector as gold and silver plummeted

Risk assets from commodities to Asian shares slid on Monday as weaker-than-expected US and Chinese data raised concerns about the global economic outlook, prompting investors to book some gains from recent market rallies.

Global equities and commodities slumped late last week on a negative reading of US consumer sentiment and soft retail sales, as well as on rekindled worries in the euro zone. This raised investor sensitivity to data due this session from China, the world's second-largest economy.

China said on Monday its economic recovery unexpectedly stumbled in the first three months of 2013, with the annual rate of growth easing to 7.7% from 7.9% in the final quarter of last year. Economists had forecast 8% growth. Another data showed industrial output in March grew 8.9% from a year earlier, undershooting expectations for a 10% rise.

"US data was just a start, and it shows that the global recovery is not quite as good as everyone thinks it is. And today, it's been backed up by China data," said Stan Shamu, market strategist at IG Markets in Sydney.

"It's just a broad risk sell-off as investors grow a little bit sceptical about the recovery that had driven markets much higher over the past several months. A lot of people just use any fragile economic data as an excuse to get out of it and lock in some gains," he said.

The sluggish data should underscore the need to keep global monetary stimulus in place, helping to support markets eventually, he added.

The MSCI's broadest index of Asia-Pacific shares outside Japan fell 1.2%, led by a 3% slide in its materials sector as gold and silver plummeted.

Spot gold fell as far as $1,427.14 an ounce, its lowest since April 2011, and was last down 2.5% at $1,442.41. Spot silver fell to its lowest since November 2010 of $25.09 an ounce and was last at $25.16, down 2.7%.

US crude futures plunged 1.9% to $89.61 a barrel and Brent slipped 1.2% to $101.86.

Resources-reliant Australian shares were among the worst performers with a 1.5% drop, while Hong Kong shares shed 1.4%. The risk-sensitive Australian dollar was down 0.7% to $1.0427.

Concerns the US economy may be losing momentum and could hurt global growth, compounded by the latest China data, unnerved investors, already facing a vulnerable environment with a deteriorating European economy and struggling Japanese growth.

The Nikkei stock average slipped 1.2%, moving away from its highest level since July 2008 hit on Friday.

Yen in US Focus

The weak US data pushed the dollar lower on Friday, sending it as low as 98.08 yen. The dollar traded at 98.16 on Monday.

The yen's rise against the dollar also helped send the euro down to 128.39 yen on Monday.

Last week, the dollar touched a four-year high of 99.95 yen while the euro climbed as far as 131.10 yen, its highest since January 2010. The Australian dollar also soared to 105.43 yen, the highest since November 2007.

Daisuke Karakama, market economist at Mizuho Corporate Bank, said the dollar's drop against the yen appeared contained, despite the sluggish US retail sales and consumer sentiment gauge and the Obama administration on Friday putting Japan on notice in its semi-annual report on currency practices of major trade partners, indicating underlying weakness of the yen.

The US said it was watching Japan's economic policies to ensure they were not aimed at devaluing the yen to gain a competitive advantage.

"As long as the yen's weakness comes as a result of Japanese government's economic measures to beat deflation, there is little the US can say, because Japan is not intervening in currency markets to weaken its currency like some other countries might do," Karakama said.

The Bank of Japan's unprecedented stimulus plan has cheered just about all global markets except Japanese government bonds, reflecting investor jitters about its effect but there is one market which has defied its magic

Aimed at beating Japan's deflation and lowering bond yields, the Bank of Japan's unprecedented stimulus plan has so far severely destabilised the Japanese government bond market, and risks turning once low-risk low-return JGBs into a high-risk low-return assets.

Other potential risks weighing on sentiment included North Korea.

North Korea prepared for the annual celebration of its founder's birth on Monday, having rejected talks with South Korea aimed at reducing tensions and reopening a industrial park shared between the two countries.

The North has threatened for weeks to attack the United States, South Korea and Japan since new UN sanctions were imposed in response to its latest nuclear arms test in February.