Asia stocks pare losses after sharp plunge; Nikkei drops 1.5%

Forexpros - Asian stock markets posted sharp losses on Tuesday, as market sentiment was rattled following a massive overnight sell-off on Wall Street, while stronger-than-expected Chinese inflation data added to fears over the global economic outlook.

During late Asian trade, Hong Kong's Hang Seng Index plunged 3%, South Korea's Kospi Composite tumbled 3.65%, while Japan's Nikkei 225 Index sank 1.5%.

Asian equities came off their earlier lows in mid-afternoon trade, stabilizing after dramatic plunges earlier in the session.

But investors remained on edge after the Dow Jones Industrial Average suffered its sixth-biggest drop on record, following an S&P downgrade of the U.S. debt rating.

Adding to global concerns, a report from China's National Bureau of Statistics showed that consumer price inflation rose by a seasonally adjusted 6.5% in July, the fastest pace in three years.

The stronger-than-expected inflation data dampened hopes that the world's second largest economy would loosen monetary policy in the near-term.

Shares in the financial sector, many of which have large exposure to U.S. Treasuries, extended losses from the previous session.

Japan's largest lender Mitsubishi UFJ Financial Group fell 2.4%, rival Sumitomo Mitsui Financial Group lost 2.2%, while Mizuho Financial Group dropped 2.5%.

Japanese exporters with high exposure to the U.S. came under further pressure, amid a downbeat outlook for export earnings.

Consumer electronics giant Sony saw shares drop 1.15%, plasma television maker Panasonic lost 1.2%, while automakers Honda and Nissan saw shares retreat 2.75% and 2% respectively.

In Hong Kong, banking shares led losses, tracking their global counterparts lower. China Construction Bank shares plunged 3.55%, Bank of China fell 4.35%, while Hong Kong-listed shares of HSBC Holdings tumbled 4.7%.

Oil producers were also down, as crude oil prices fell to an 11-month low on the New York Mercantile Exchange, dampening earnings prospects for energy explorers.

Oil and gas giant PetroChina saw shares drop 4.4%, shares in China's largest offshore oil producer CNOOC shed 3.2%, while shares in Sinopec fell 3.4%.

The outlook for European stock markets was downbeat. The EURO STOXX 50 futures pointed to a loss of 0.1%, France's CAC 40 futures shed 0.4%, the FTSE 100 futures sank 1.2%, while Germany's DAX futures indicated a drop of 0.9%.

Later in the day, the U.S. is to publish preliminary data on nonfarm productivity and labor costs. In addition, the Federal Reserve is to announce the federal funds rate. The announcement will be followed by the bank's rate statement.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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