Asia shares slip on US rate hike

TOKYO (Reuters) – Asian shares eased yesterday after the Federal Reserve raised interest rates and struck a more hawkish tone by forecasting a slightly faster tightening, while concerns about weak Chinese data and US-China trade frictions kept investors on edge.

Surprisingly weak Chinese retail sales and urban investment data curbed investors’ risk appetite by adding to doubts over the world’s second-largest economy as its central bank unexpectedly left interest rates on hold rather than follow the Fed higher.

European shares are expected to fall, with spreadbetters looking at a lower opening of 0.4 percent in Britain’s FTSE, 0.3 percent in Germany’s Dax, and 0.2 percent in France’s CAC.

MSCI’s broadest index of Asia-Pacific shares outside Japan lost one percent, with shares in South Korea and Taiwan falling over one percent.

Japan’s Nikkei lost 0.6 percent while in mainland China, Shanghai composite index is on course to hit a 20-month closing low, shedding 0.4 percent.

The Fed raised its benchmark overnight lending rate a quarter of a percentage point to a range of 1.75 percent to two percent, as expected, on the back of strong US economic growth.

Fed policymakers’ rates projections pointed to two additional hikes by the end of this year compared to one previously, based on board members’ median forecast.

“The Fed was slightly more hawkish. But at the same time, the Fed is raising rates because of a strong economy and not because of the need to contain inflation. So that might have helped curb market reactions,” said Masayuki Kichikawa, chief macro strategist at Sumitomo Mitsui Asset Management.

The spectre of higher borrowing costs hit stocks while boosting US bond yields and the dollar. The overall market reaction was short-lived, however.