Asian equities and metals prices slipped on Thursday, after disappointing U.S. private employment and services sector data led investors to trim over extended bets and look for better points to buy again.
The U.S. dollar was largely steady against the euro after rebounding sharply overnight, benefiting as investors cut bets on higher-yielding currencies and after a Reuters story said Asian monetary officials would stick with U.S. Treasuries even if the top U.S. sovereign debt rating was downgraded.
Materials and energy stocks led the decline in Asian stocks from eight-month highs reached on Wednesday, following a 2.8 percent decline overnight in the Reuters-Jefferies CRB index <.CRB>, a commodities benchmark.
The real test of investors' convictions about the nascent recovery will come on Friday, when the May U.S. payrolls number is released.
A dose of much needed reality has been swallowed by markets overnight. The tone of economic data has not so much changed, but perception of what constitutes an outright positive story certainly has, said Patrick Bennett, Asia foreign exchange and rates strategist with Societe Generale in Hong Kong, in a note.
The MSCI index of Asia Pacific shares outside Japan <.MIAPJ0000PUS> fell 1.25 percent, but was still up 33 percent so far in 2009. Utilities were the only sector in the black, as investors shifted some money to defensive bets, but consumer discretionary stocks also outperformed on hopes domestic growth in Asia will remain resilient.
Japan's Nikkei share average <.N225> edged down 0.3 percent, with industrial names like Fanuc <6954.T> and Shin-Etsu Chemical <4063.T> among the biggest drags on the market.
In Hong Kong, the Hang Seng index <.HSI> was down 1 percent, led by shares of Asia's largest oil and gas producer PetroChina <0857.HK>, which was hurt by lower crude prices and a stronger dollar.
In testimony to the U.S. House of Representatives, Federal Reserve Chairman Ben Bernanke gave an upbeat assessment of the economy, saying he expects activity to turn up later this year.
However, reports on Wednesday showed companies shed 532.000 private sector jobs in May, more than expected, while a gauge of the giant U.S. services sector reflected contraction for the eighth consecutive month.
The U.S. data reminded market participants once again that the economic outlook isn't so rosy as many have been saying lately, said Hideki Amikura, deputy general manager of forex trading at Nomura Trust and Banking.
He said the much talked-about 'green shoots' scenario may peter out after restocking in the April-June quarter, which is usually more buoyant than the first quarter as firms tend to boost inventories.
London copper futures fell for a third day on Thursday, chased by their Shanghai equivalent, which shed 3.4 percent, under pressure from a recovery in the dollar and soft data from the United States.
U.S. crude for July delivery fought back early losses to trade slightly higher on the day, up 0.3 percent to $66.29 a barrel after a 3.5 percent decline overnight.
Oil prices were still up about 49 percent year-to-date, thanks to a small production-based recovery around the world.
Still, data released on Wednesday showed U.S. fuel demand for the four weeks ended May 29 was down 7.7 percent on an annual basis, suggesting the recovery may be sluggish.
The dollar has had a big influence on crude prices, with oil gaining when the currency weakens and vice versa.
After tumbling overnight, the euro stabilized to trade roughly steady at $1.4175, more than two cents below a high for the year of around $1.4337 reached early on Wednesday.
The Australian dollar, which has been a favorite among investors because of the country's trade ties with China, was largely unchanged on the day at US$0.8008, after the surging U.S. dollar overnight spooked dealers into taking profits on the Australian currency's recent gains.
The high-yielding Aussie remained resilient despite comments from Reserve Bank of Australia Governor Glenn Stevens that he saw scope for further policy easing, although the domestic economy is well placed for expansion later this year.
(Additional reporting by Aiko Hayashi in Tokyo)
(Editing by Kazunori Takada)