Asian shares slip, China looks set to tighten liquidity

Asian shares fell in volatile trade on Thursday and the dollar came under pressure as a further spike in Chinese money-market rates tempered the effect of data showing a pick-up in manufacturing.

China's benchmark seven-day repo rates opened up nearly a full percentage point at 5% after the central bank let cash drain from the money market for a second week.

The Chinese central bank declined to inject cash for a third day as regulators showed signs of concern that loose liquidity might again be fuelling risky credit growth.

China's CSI300 index lost 0.4%, adding to the 2.1% slide in the previous two sessions.

MSCI's broadest index of Asia-Pacific shares outside Japan dipped 0.1% after trading higher on the back of the preliminary survey by the Markit/HSBC Purchasing Manager Index on Chinese manufacturing sector. It had lost 0.9% on Wednesday to end a four-day winning streak.

"I wouldn't add on any new positions from here," said Hong Hao, chief strategist at Bank of Communication International Securities.

"Cash demand is going to be high in October because people have to pay taxes and banks have to park reserves with the central bank, but I think people ought to see that the People's Bank of China has already tightened because they have not sold any yuan, allowing the yuan to spike," he added.

"Now with the property restrictions starting to appear, that usually doesn't bode well for the stock market."

But Australian shares advanced 0.4% and the Australian dollar rose 0.3% to $0.9651 on the day. China is its biggest export market.

Before the concerns over China checked the market bullishness, global equity markets had been rallying after the resolution of the US budget impasse and on expectations the Federal Reserve would extend its cheap money stimulus into 2014.

The dollar was at 0.8915 franc, just above a two-year low of 0.8908 hit on Wednesday. It was holding at 97.33 yen, near a two-week low touched in the previous session.

Against a basket of major currencies, the dollar was down 0.1% at 79.203, within striking distance from an eight-month low of 79.137 touched on Wednesday.