Stocks falter as virus outbreaks fan global recovery fears

HONG KONG: Asian stocks were down early on Tuesday as growing fears the spreading Delta variant of the coronavirus would harm the global economic recovery sent riskier assets, including oil, skidding sharply.

MSCI's gauge of Asia Pacific stocks outside Japan fell as much as 0.29per cent, with Australia's S&P/ASX 200 down 0.39per cent.

Japan's Nikkei 225 hit a six-month low in early trade and widened the losses to 1.05per cent.

The Hang Seng Index opened 0.3per cent lower and China's benchmark CSI300 Index slid 0.7per cent at the start.

In Beijing, policymakers kept the benchmark lending rate for corporate and household loans unchanged at its July fixing on Tuesday, despite growing expectations for a cut after a surprise lowering of bank reserve requirements.

"The markets are clearly on risk-off mode," said Edison Pun, senior market analyst at Saxo Markets, adding that Wall Street's uptrend is weakening.

Stocks on Wall Street fell as much as 2per cent on Monday, with the Dow posting its worst day in nine months as COVID-19 deaths increased in the United States.

Riskier assets globally have come under pressure recently as many countries struggle to contain the outbreak of the fast-spreading Delta virus variant, raising fears that further lockdowns and other restrictions could upend the worldwide economic recovery.

"Despite the vaccine rollout, markets do not appear to be learning to live with COVID-19," ANZ analysts wrote in a note to clients.

"Sentiment appears to have shifted, at least for the moment, to a persuasion that growth and earnings expectations may be overdone," they said, noting that risk-averse investors were bailing out of commodities.

Oil prices plunged more than 6per cent, driven down both by worries about future demand and by an OPEC+ agreement to increase supply.

U.S. yields turned higher on Tuesday following Monday's searing rally. The 10-year yield rose to 1.2087per cent from a close of 1.181per cent, a level last seen in February, and the 2-year yield edged up to 0.2196per cent from 0.21per cent Tuesday.

However, while the U.S. yield curve steepened slightly, the spread between the U.S. 10-year and 2-year yield remained near February lows, signalling investor doubts about the growth outlook.

Japan's core consumer prices rose 0.2per cent in June from a year earlier to mark the fastest annual pace in over a year, driven largely by higher energy costs, a sign the impact of global commodity inflation was gradually broadening.

U.S. crude managed to steady and paresome of Monday's losses, up 0.74per cent at US$66.91 a barrel, while Brent also recovered to gain 0.45per cent at US$68.93 a barrel. However, both were still down sharply from the end of last week.

Spot gold was steady at US$1,813.15 per ounce, after falling to a one-week low of US$1,794.06 in the previous session.

(Reporting by Kane Wu in Hong Kong; additional reporting by Andrew Galbraith in Shanghai; Editing by Shri Navaratnam)