Renewed fears that the Federal Reserve will lift interest rates next week sent Asian markets into reverse Thursday, tracking losses across Wall Street and Europe, while traders were looking for measures from China to boost growth.
Equities have enjoyed a broadly healthy run-up so far this month as recent data suggested the US economy was holding up after 10 straight rate hikes but the central bank had enough room to skip another increase this month.
However, a surprise lift by the Bank of Canada on Wednesday -- a day after Australia lifted rates to an 11-year high -- dealt a blow to those hopes and reminded investors that more work was still needed to fight still-too-high inflation.
The Fed's June 14 decision comes just after the release of figures on the consumer price index, which could play a major part in policymakers' thoughts, with the board still split on whether or not to pause.
"Canada's central bank is viewed as one of the leaders when it comes to being proactive with monetary policy," said OANDA's Edward Moya.
"They were the first to raise rates in 2022 and then put them on hold earlier this year. The BOC is signalling that more rate hikes could come and that has everyone rethinking that the Fed will be done after the July hike."
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The news compounded the already gloomy mood on trading floors following weak trade data out of China and the United States as well as subdued German industrial production.
Wall Street's tech firms, which are susceptible to higher borrowing costs -- took the heaviest hit Wednesday, sending the Nasdaq down more than one percent.
And the selling filtered through to Asia, where Hong Kong, Shanghai, Sydney, Seoul, Singapore, Wellington, Taipei, Manila and Jakarta were all in the red.
"Given the rally that we've had, it would be normal to see a bit of a pause, particularly in the context that we see where rates might plateau quite soon, but stay higher for longer," Virginie Maisonneuve, at Allianz Global Investors, told Bloomberg Television.
Tokyo swung between gains and losses after enjoying a healthy rally in recent months. The Nikkei 225 was supported, however, by data showing Japan's economy expanded more than initially thought in the first three months of the year.
In contrast, the torpid performance of China's economy has traders hoping Beijing will unveil fresh support measures as the initial boost from the removal of zero-Covid fades.
Observers said the People's Bank of China could announce a rate cut as early as this month, having this week asked major lenders to lower their deposit rates.
That came after reports last week said officials were looking to ease some rules in the property sector, where a number of firms are straining under the weight of massive debts.
Key figures around 0230 GMT
Tokyo - Nikkei 225: DOWN 0.1 percent at 31,871.23 (break)
Hong Kong - Hang Seng Index: DOWN 0.5 percent at 19,158.43
Shanghai - Composite: DOWN 0.1 percent at 3,194.52
Euro/dollar: UP at $1.0711 from $1.0696 on Wednesday
Pound/dollar: UP at $1.2451 from $1.2431
Dollar/yen: DOWN at 139.92 yen from 140.24 yen
Euro/pound: DOWN at 86.02 pence from 86.03 pence
West Texas Intermediate: DOWN 0.1 percent at $72.45 per barrel
Brent North Sea crude: DOWN 0.1 percent at $76.84 per barrel
New York - Dow: UP 0.3 percent at 33,665.02 (close)
London - FTSE 100: DOWN 0.1 percent at 7,624.34 (close)