China Cut Spooks Asia Markets

By DANIEL INMAN

Asian markets fell Friday as the Federal Reserve failed to commit to further easing and a China interest-rate cut raised concerns Asia's biggest economy is slowing faster than previously expected.

China's rate cut late Thursday, its first since December 2008, initially boosted U.S. markets?but was getting a different spin by the time Asian markets opened.

"It is better than no cut, but it shows that the slowdown is pretty serious," said Howard Wong, managing director of Doric Capital in Hong Kong, which manages $50 million.

The benchmark lending and deposit rates was reduced by 0.25 percentage point, to 6.31% and 3.25%, respectively. There was also some loosening of interest rate rules: Chinese banks are now allowed to lend at a discount of up to 20% below the benchmark, compared with the previous 10%.

The People's Bank of China's move followed the posting of weak manufacturing reports and came ahead of an array of economic data for May that's expected to be released this weekend. Analysts aren't optimistic about coming data.

"It will probably take more than one interest-rate cut to put the economy on an upward trajectory," said Howhow Zhang, head of research at Shanghai consulting firm Z-Ben Advisors.

Hopes for an early policy response in the U.S. were dashed when Fed Chairman Ben Bernanke failed to signal that there will be further easing at its meeting later this month, saying only that the central bank is "prepared to take action" to help the economy.

There were further negative signs out of China, as China Investment Corp. Chairman Lou Jiwei was downbeat on the European debt crisis in an interview with The Wall Street Journal. The head of China's sovereign-wealth fund said that he saw a risk of a breakup of the euro zone, and that the fund has scaled back its holding of stocks and bonds across the Continent.

Despite a positive revision to Japan's first-quarter growth figures, Tokyo's Nikkei Average was off 2.1%, cutting into its 4.2% gain of the previous three sessions. The Japanese economy grew by 1.2% in the period between January and March, compared with an earlier estimate of 1%, but the market was more focused on the April current-account surplus. It was down 21% from a year earlier to ?333.8 billion ($4.2 billion), short of the forecast ?455.6 billion.

Hong Kong's Hang Seng Index was down 0.5%, South Korea's Kospi was off 0.6%, Singapore's Straits Times Index was 0.5% lower and Australia's S&P ASX 200 was down 1.1%.

The Shanghai Composite was nearly unchanged.

The dollar was at ?79.29, down from ?79.63 late Thursday in New York, while the euro was at $1.2520, weaker than $1.2561 late Thursday.

China's rate cut was bad news for the Hang Seng Index, which was pulled down by drops in the Chinese state-owned banks: Bank of Communications was the index's worst performer, falling 3.7%, while China Construction Bank and Industrial and Commercial Bank of China were down 2.6% and 2.9% respectively.

The main beneficiaries of the rate cut were mainland developers, as the sector will be able to take advantage of cheaper funding costs and a possible increase in property demand. Shimao Property was up 4.4% and China Resources Land was 2.7% higher.

Also in Hong Kong, Italian luxury goods company Prada was up 7.9% after posting a first-quarter profit more than double that of a year earlier?though the company was cautious about the rest of the year, due to uncertain economic environment.

Write to Daniel Inman at daniel.inman@wsj.com

lakers news rachel crow rachel crow steelers browns va tech dan gilbert david stern