By Wayne Cole and Andrew Galbraith
SYDNEY/SHANGHAI (Reuters) - Share markets in Asia plunged to a 19-month low on Thursday after Wall Street's worst losses in eight months led to broader risk aversion, a rise in market volatility gauges and concerns over overvalued stock markets in an environment of rapidly rising dollar yields.
Markets in Europe are seen as unlikely to stem the bleeding, with financial spreadbetters expecting London's FTSE to open 1.4 percent lower at 7,047, Frankfurt's DAX to open down 1.8 percent at 11,501 and Paris' CAC to open down 2.1 percent at 5,096.
The sell-off, which came as the head of the International Monetary Fund, Christine Lagarde, said stock market valuations have been "extremely high", erased hundreds of billions of dollars of wealth around the region.
"Equity markets are locked in a sharp sell-off, with concern around how far yields will rise, warnings from the IMF about financial stability risks and continued trade tension all driving uncertainty," summed up analysts at ANZ.
Japan's Nikkei ended down 3.9 percent its steepest daily drop since March, while the broader TOPIX lost around $207 billion in market value, falling 3.5 percent.
"Further short-term equity pain may well be unavoidable in South Korea as foreigners are selling, but bond market is holding up," said Peter Park, head of securities management at South Korea's IBK Insurance.
Sinking global shares have raised the stakes for U.S. inflation figures due later on Thursday as a high outcome would only stoke speculation of more aggressive rate hikes from the Federal Reserve.
"We're all just watching the Fed. We're all watching the U.S. economy, we're worrying about an inflation spike or a wages spike that will come through," said Rob Carnell, chief economist and head of research at ING in Singapore.
But he said that he expected the data to show inflation peaking rather than moving sharply higher, which "could restore a little bit of calm."
On Wall Street, the S&P500's sharpest one-day fall since February wiped out around $850 billion of wealth as technology shares tumbled on fears of slowing demand.
It was hawkish commentary from Fed policymakers that triggered the sudden sell off in Treasuries last week and sent long-term yields to their highest in seven years.
The surge made stocks look less attractive compared to bonds while also threatening to curb economic activity and profits.
"The rise in Treasury yields has been the primary catalyst for the sell-off in equities, since higher yields suggest a lower present value of future dividend streams, assuming an unchanged economic outlook," said Steven Friedman, senior economist at BNP Paribas Asset Management.
"It is also possible that equity investors are growing concerned that the Federal Reserve's projected rate path will choke off the expansion."
YUAN A FLASHPOINT
China has suspended approvals for an overseas investment product in Shanghai and has asked license holders such as JPMorgan Asset Management and Aberdeen Standard Investments to be "low profile" in marketing it, as concerns rise in Beijing over possible outflow pressures.
The onshore yuan was trading at 6.9305 per dollar at 0606 GMT, 65 pips weaker than the onshore close of 6.9240 Wednesday.
China's move has forced other emerging market currencies to weaken to stay competitive, and drawn the ire of the United States which sees it as an unfair devaluation.
"The yuan has already weakened significantly, to offset the tariffs announced so far," said Alan Ruskin, Deutsche's global head of G10 FX strategy. "Further weakness could exacerbate concerns of a self-fulfilling flight of capital, and a loss of control."
The dollar was already losing ground to both the yen and the euro, as investors favoured currencies of countries that boasted large current account surpluses.
The euro was at $1.1550, up from a low of $1.1429 early in the week. The dollar lapsed to 112.17 yen, a telling retreat from last week's 114.54 peak.
That left the dollar at 95.263 against a basket of currencies.
In commodity markets, gold struggled to get any safety bid and edged down to $1,192.77.
Oil prices skidded in line with U.S. equity markets, even though energy traders worried about shrinking Iranian supply from U.S. sanctions and kept an eye on Hurricane Michael, which closed some U.S. Gulf of Mexico oil output.
Brent crude fell 1.6 percent to $81.75 a barrel, while U.S. crude dropped 1.5 percent to $72.07.
(This story has not been edited by Business Standard staff and is auto-generated from a syndicated feed.)