Asian stocks took a hit on Thursday as weak U.S. retail sales underscored the long road to economic recovery, prompting profit-taking on winning bets in equities, higher-yielding currencies and commodities over the past two months.
The retreat in Asian shares tracked the overnight drop on Wall Street after retail sales posted an unexpected drop in April and suggested that consumers were still struggling from job losses, falling home prices and tighter credit.
European shares were set to dip about 0.5 percent at the start of trade.
U.S. retail sales point to a continued slump in the world's largest economy, said Y.S. Rhoo, a market analyst at Hyundai Securities in Seoul.
The dollar edged up from a four-month low hit the previous day as investors had gradually shifted funds away from the safe-haven U.S. currency and into riskier assets. Oil prices pulled further away from a six-month peak reached this week.
Analysts said markets were likely seizing on the poor U.S. data to take profits on positions that global growth was slowly picking up, which drove up Asian shares more than 50 percent at one point from their low mark in early March.
Ratings agency Standard & Poor's said in a report on Asian economies on Thursday that it was too early to say the global economy has bottomed.
The MSCI index of Asia-Pacific shares outside Japan <.MIAPJ0000PUS> dropped 3.3 percent and poised for its biggest one-day drop in six weeks. But the benchmark was still up some 19 percent since the start of the year and 45 percent from its year low struck in March.
On Wednesday, the S&P 500 <.SPX> shed 2.7 percent, and futures on that U.S. stock index were down slightly in Asia.
Japan's Nikkei average <.N225> fell 2.6 percent. Hong Kong's Hang Seng index <.HSI> shed 3.2 percent, with HSBC <0005.HK> and China Mobile <0941.HK> -- the two biggest heavyweights in the index -- leading the decline.
In a sign that investors were taking profits, open interest in Hang Seng futures fell on Wednesday after reaching its highest level since October 8 -- at the tail end of last year's slide to five-year lows.
The dip in open interest and fall-off in volume signaled that market players were taking chips off the table and were reluctant to chase the market higher.
Even though money is continuing to come into Hong Kong, it is not directly flowing into the stock market anymore, said Linus Yip, strategist with First Shanghai Securities in Hong Kong.
Investors are also keeping an eye on the results of India's general election. The ruling Congress-led coalition is slightly ahead of the opposition Hindu nationalists-led alliance, but both groups have fallen short of a parliamentary majority, according to early projections.
The decline in Mumbai's SENSEX <.BSESN> was limited compared with the rest of the region, shedding 1 percent.
DOLLAR LIMPS UP, BONDS JUMP
The dollar limped up from a four-month low hit on Wednesday, partly on the revival of risk-taking but also because its break through the 200-day moving average against the euro sparked wide selling.
Chart technicals for the U.S. currency have turned negative since the break of the widely tracked 200-day moving average, which has signaled turning points against the euro in the past.
The euro slipped 0.2 percent to $1.3570 after having jumped to $1.3722 the previous day, threatening to push above the peak reached in March that would likely add fuel to the rise.
The dollar index, a gauge of its performance against six major currencies, edged up 0.1 percent to 82.671 <.DXY>. Against the yen, the dollar was up slightly at 95.70 yen.
The dollar's slide had reinforced a jump in gold and oil prices. Gold was down 75 cents an ounce at $924.70, while U.S. crude dipped 44 cents to $57.58 a barrel after having climbed as high as $60.08 this week.
Battered bonds recovered as stocks lost ground.
JGB futures gained 0.44 point at 136.94 after having fallen to their lowest since late October on Wednesday. The benchmark 10-year JGB yield was down 2 basis points to 1.430 percent.
South Korean government bonds rebounded sharply in early trade after the country's finance minister said he was not confident about the improvement in the job market.
Korean government bond futures rose 26 ticks, bouncing from a one-month low hit this week.
(Additional reporting by Jungyoun Park in Seoul and Parvathy Ullatil in Hong Kong)