The flash Caixin/Markit China Manufacturing PurchasingManagers' Index (PMI) dropped to 48.2, below economists'estimate for a reading of 49.7 and the lowest reading sinceApril last year. It was the fifth straight month below 50, thelevel which separates contraction from expansion.
Asian equities stumbledon Friday after a survey showed China's manufacturing activitycrumbled to 15-month lows, rekindling concerns for the region'sexports as the world's second-largest economy struggles toarrest a broad downturn.
MSCI's broadest index of Asia-Pacific shares outside Japan was down about 1 percent in early trading, oncourse for a weekly loss of more than 2 percent - one of thebiggest slides this year.
The flash Caixin/Markit China Manufacturing PurchasingManagers' Index (PMI) dropped to 48.2, below economists'estimate for a reading of 49.7 and the lowest reading sinceApril last year. It was the fifth straight month below 50, thelevel which separates contraction from expansion.
The weak PMI comes on the heels of some gloomy data in someof the biggest economies in the region.
South Korea's economy recorded its weakest expansion in sixyears for the second quarter, while Japanese exports to Chinawere relatively weak, reviving concerns of slowing corporateprofits across Asia.
The Australian dollar, which investors use as a liquid proxyfor risk in China, slumped to six-year low.
Japan's Nikkei stock index dipped about 0.7 percent,even though a similar survey for Japan showed improvement. Theflash Markit/Nikkei Japan Manufacturing Purchasing ManagersIndex (PMI) rose to a seasonally adjusted 51.4 in July from afinal 50.1 in June, suggesting economic growth is picking upafter an expected slump in the second quarter.
"Japan's PMI was good, but Japanese stocks are reacting moreto China's," said Ayako Sera, senior market economist atSumitomo Mitsui Trust Bank in Tokyo.
"Everyone is concerned about the state of China's economy,and this reaction shows that market is very sensitive toinformation like this," she said.
On Wall Street overnight, downbeat corporate earningsreports sent U.S. equities lower, with all three major U.S.indexes logging solid losses.
"U.S. equities are looking ripe for a long-awaitedcorrection and that should keep investor sentiment towards Asiacautious though Chinese and Japanese equities may gaintactically in the coming weeks," said Kay Van-Pietersen, Asiamacro strategist at Saxo Partners in Singapore.
China looks set to further reduce interest rates and theamount of cash its banks must hold as reserves to try to keepits economy growing at 7 percent this year, which would be theslowest pace in a quarter of a century, a Reuters poll showed onThursday.
In currency markets, better-than-expected U.S. joblessclaims put a floor under U.S. Treasury yields, adding to thedollar's appeal, and giving further impetus to the monetarypolicy divergence trade.
The monetary divergence theme - the Federal Reserve has itssights on raising rates while the European Central Bank and Bankof Japan are still deeply committed to monetary easing - iswidely expected to favor the dollar in the long term.
"News from Greece helped, but fundamentally speakingeuro/dollar remains on a downtrend in the long run. Europeaneconomic indicators and inflation data are not as strong as theywere at the start of the year, and of course the U.S. issteadily preparing to hike rates," said Shinichiro Kadota, chiefJapan FX strategist at Barclays in Tokyo.
The dollar was steady on the day at 123.90 yen, a dayafter weekly employment data showed that initial jobless claimsdeclined 26,000 to a seasonally-adjusted 255,000, the lowestsince November 1973.
The euro was broadly flat on the day at $1.09805,after gaining in the previous session, as the Greek parliamentapproved a second set of reforms required to start negotiationswith lenders in a bid to avert bankruptcy.
In fixed income markets, benchmark U.S. 10-year yield was at 2.29 percent in Asian trading, compared toits U.S. close of 2.278 percent on Thursday with some analystsexpecting ten-year yields to rise to 3 percent by the year end.
Spot gold was steady on the day at $1,079.4050 anounce, but on track for a weekly loss of nearly 4 percent, aftermarking its deepest one-day loss in nearly two years on Monday.
Crude oil futures rebounded from multi-month lows recordedovernight, with U.S. crude up about 0.7 percent at $48.78a barrel, after marking its lowest settlement since March 31.
Brent added 0.4 percent to $55.51, after it settledat its lowest level since April 2 on Thursday, amid persistentfears about a global supply glut.
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