Reuters - Asia stock indexes fell to a six-week low Thursday as selling in technology shares in Hong Kong and rising virus cases added to a broad risk-averse mood - pressuring oil prices and lending support to bonds and the dollar.
A turn toward lower interest rates in China saw buying in sovereign China debt and sent 10-year yields to a 10-month low.
MSCI's broadest index of Asia-Pacific shares outside Japan fell 1% to its lowest since late May, shrugging off a positive tilt from Wall Street.
"Market sentiment is turning somewhat shaky," said OCBC analyst Terence Wu. Japan's Nikkei fell 0.6% and S&P 500 futures were 0.3% lower.
The Hang Seng index led losses with a 1.9% drop, its eighth consecutive session in the red, with more falls in internet companies Tencent, Meituan and Alibaba as the sector reels from sweeping China regulatory scrutiny.
The longer end of the U.S. yield curve, meanwhile, is in its eighth consecutive day of buying that has pushed the 10-year yield nearly 24 basis points lower in just under two weeks. The 10-year yield was last at 1.3113%.
"Equity markets and the economy are saying the reflationary trade has got plenty to go...but when you look at the bond market it's saying the reflation trade is pretty much over," said Matt Sherwood, head of investment strategy at Sydney-based fund manager Perpetual.
"So we have two absolutely diverse signals from separate parts of the financial markets."
The spread of the Delta variant continues to drive world case counts higher, with South Korea reporting its highest one-day number of infections Thursday after Indonesia reported record deaths Wednesday.
Minutes from the June Federal Reserve meeting confirmed the central bank considered inflation and was prepared to act if necessary - even if it still thinks that is a long way off.
"The message from the U.S. Federal Reserve remains that momentum continues to improve, necessitating a less dovish stance," analysts at TD Securities said.
"This has made higher inflation less likely amid a more responsive Fed, potentially keeping the curve flatter for now."
The spread between U.S. two-year and 10-year yields touched its narrowest since February overnight.
Stock markets, however, were concentrated on the likelihood of tapering being some way off and the S&P 500 and Nasdaq notched fresh record closing highs.
China looks to be leaning the other way, and late Wednesday said it would use cuts in the bank reserve requirement ratio (RRR) to support the real economy, especially small companies.
"Since mid-2018, the State Council has mentioned RRR cuts seven times (excluding the memo yesterday), and the People's Bank of China has delivered RRR cuts six times," Nomura analysts said.
"Based on this track record, we view an RRR cut as highly likely in coming weeks, though it is not guaranteed," they said.
Elsewhere, the dollar retained bid on the risk of higher U.S. interest rates and as investors looked for safety.
The dollar rose broadly in early Asia trade, reeling back recent gains in the New Zealand dollar to peg it back at $0.6986, while the euro sat near Wednesday's three-month low at $1.1786.
The safe-haven yen was also firm at 110.56 per dollar.
In commodity markets oil was weak for a third day amid anxiety about a rise in supply after talks among producers collapsed this week. Brent futures were last down 0.5% at $73.09 a barrel and U.S. crude fell 0.6%.
Ahead Thursday traders are awaiting the announcement of results of the European Central Bank's strategy review where it is likely to tweak the definition of its inflation target. Central banks in Malaysia, Poland and Peru also meet to set rates.
