Asian shares set for worst month since Feb on China gloom

WASHINGTON: Asian shares were set for the worst month since February, with sentiment hurt by still-gloomy China factory activity, while investors were also cautious ahead of a barrage of US data that could add to bets that interest rates have peaked.

MSCI's broadest index of Asia-Pacific shares outside Japan added 0.1% but was still headed for a monthly loss of 5.9%, the largest since February. Japan's Nikkei gained 0.5%, bringing its monthly loss to 2%. Data on Thursday showed China's manufacturing activity contracted for a fifth straight month in August, and the expansion in the services sector lost a little momentum.

Chinese blue chips were flat but a 2.5% rebound in property stocks boosted Hong Kong's Hang Seng Index, which rose 0.7%. Two of China's biggest cities on Wednesday eased mortgage curbs, allowing home buyers to enjoy preferential loans for first-home purchases regardless of their previous credit record.

However, concerns remain, with China's largest private property developer Country Garden warning of default risks if its financial performance continues to deteriorate, after posting a record first half loss. Barring the China gloom, investor confidence jumped in August, with a global confidence index (ICI) from State Street Global Markets surging 11.4 points to 107.7, led by North America which recorded the strongest reading in a year on easing recession fears.

"Investor confidence saw its biggest jump in 18 months, with the Global ICI now solidly in risk-seeking territory, as risk appetite improved in every region this month," said Marvin Loh, senior global macro strategist at State Street Global Markets. Overnight, Wall Street rose after a slew of U.S. economic indicators generally surprised to the downside, adding to bets that the Federal Reserve is done tightening and rate cuts next year could amount to more than 100 basis points.

Private payrolls clocked a 52.3% monthly drop, adding to signs of a softening in the labour market, while second-quarter GDP was revised lower. Attention now turns to inflation numbers as measured by the U.S. personal consumption expenditures (PCE) on Thursday - the Federal Reserve's preferred gauge of inflation - and non-farm payrolls on Friday.

Action in the Treasuries market was muted. Two-year yields stood at 4.8901% on Thursday, after briefly dipping to a three-week low of 4.8360% overnight. Ten-year yields held at 4.1178%, having also ended the session flat.

There was less cheer in Europe on the inflation front. Annual inflation in Germany and Spain barely slowed in August, against expectations, raising the stakes for the europe-wide inflation numbers later in the day. Bets that the European Central Bank will have to hike in September saw the euro surge on the yen, hitting a 15-year high of 159.76 yen overnight. It last hovered at 159.61 yen on Thursday.

Oil prices were mostly flat. Brent crude futures were little changed at $85.88 per barrel and U.S. West Texas Intermediate crude futures were up 0.1% at $81.74. The gold price was 0.3% higher at $1,94.35 per ounce.