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Asian stocks fall for second day on Fed worries European shares steady after sharp losses
(about 1 hour later)
Most Asian stocks have fallen again as investors continue to react to news that the US central bank could begin to scale back its stimulus programme. European markets have recovered some ground after a day of steep losses sparked by news that the US Federal Reserve plans to scale back its stimulus programme.
South Korea's main index dropped 1.5% while Australia's lost 0.4%. However, Japan's Nikkei reversed early losses. The main share indexes in the UK, Germany and France recorded modest gains of up to 0.8% in early trade.
The indexes in Shanghai and Hong Kong were down more than 2% in early trade but pared losses. Earlier, Asian stocks had been mixed, falling sharply at first before recovering some ground later on.
On Thursday in the US, the Dow Jones share index fell 2.3% - its biggest drop this year. On Thursday, the Dow Jones fell by 2.3% - its biggest fall of the year so far.
Neil Marsh, strategist at Newedge, was one who said Thursday's sell-off had been an overreaction: "We've had a bit of a correction, and even now I think the correction looks overdone, so I am still fairly bullish."
In Asian trading, South Korea's main index dropped 1.5% while Australia's lost 0.4%. However, Japan's Nikkei reversed early losses after the weakening yen boosted shares in exporting companies.
'Force-fed steroids''Force-fed steroids'
The Fed has been trying to support the weak US economy by buying bonds at a rate of $85bn (£54bn) a month, under a policy known as quantitative easing (QE)The Fed has been trying to support the weak US economy by buying bonds at a rate of $85bn (£54bn) a month, under a policy known as quantitative easing (QE)
However, on Wednesday, Fed chairman Ben Bernanke said that if the US economy continued to show sign of improvement the central bank could start to slow down its bond purchases as early as this year and end the programme next year.However, on Wednesday, Fed chairman Ben Bernanke said that if the US economy continued to show sign of improvement the central bank could start to slow down its bond purchases as early as this year and end the programme next year.
The excess liquidity in the US has meant a lot of funds have been flowing into emerging markets, especially in Asia.The excess liquidity in the US has meant a lot of funds have been flowing into emerging markets, especially in Asia.
"Asia has benefited from US capital inflows, partly in relation to QE," said Mitul Kotecha, from Credit Agricole CIB."Asia has benefited from US capital inflows, partly in relation to QE," said Mitul Kotecha, from Credit Agricole CIB.
"It has been force-fed with steroids, and now that the steroids are going to be pulled back what will happen is a period of transitional volatility that can continue through summer.""It has been force-fed with steroids, and now that the steroids are going to be pulled back what will happen is a period of transitional volatility that can continue through summer."
However, some analysts said the reaction of emerging markets was overblown, as the Fed's move towards ending its asset-purchase programme signals that the US economy is improving.
Paring lossesParing losses
Currencies in Asia were weak against the US dollar, but the weakening Japanese yen caused a big reversal in the Nikkei in late trade. The sharp drop in the value of the yen against the dollar boosted Japan's stock market, with the Nikkei ending up 1.7%.
A weak yen is good news for Japanese exporters as it makes their goods cheaper overseas and boosts profits that are repatriated back home.
The Nikkei, which had sunk more than 2% during the morning trading session, finished 1.7% higher.
Exporters led the gains with Suzuki Motor jumping nearly 4% and Fast Retailing surging more than 6%.Exporters led the gains with Suzuki Motor jumping nearly 4% and Fast Retailing surging more than 6%.
A weak yen is good news for Japanese exporters as it makes their goods cheaper overseas and boosts profits that are repatriated back home.
Hong Kong and Shanghai indexes pared earlier losses to end the day down 0.5% and 0.2% respectively.Hong Kong and Shanghai indexes pared earlier losses to end the day down 0.5% and 0.2% respectively.
On Thursday stocks in China had fallen partly because of concerns over growth in the mainland after disappointing manufacturing activity data as well as a concern over a credit crunch. On Thursday, stocks in China had fallen partly because of concerns over growth in the mainland after disappointing manufacturing activity data as well as a concern over a credit crunch.
However, in late trade on Friday the recovery was led by financial stocks after funding costs came off a record-high easing concerns over a broader credit squeeze in China. However, in late trade on Friday the recovery was led by financial stocks after funding costs came off a record-high, easing concerns over a broader credit squeeze in China.