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China growth worries rattle Asian stocks, Aussie dollar

SYDNEY: Asian stocks stumbled to a five-week low on Monday after a batch of disappointing data out of China raised the specter of a sharp slowdown in the world’s second-biggest economy.

MSCI’s broadest index of Asia-Pacific shares outside Japan .MIAPJ0000PUS slipped 0.4 percent to its weakest level since the middle of August. Australia’s S&P/ASX 200 index .AXJO shed 0.7 percent, while South Korea’s KOSPI .KS11 fell 0.4 percent.

Japanese financial markets were shut on Monday for a public holiday.

Data released on Saturday showed China’s factory output grew at the weakest pace in nearly six years in August, while growth in other key sectors also cooled.

“This confirms a slowdown in growth momentum in Q3 following the Q2 rebound,” analysts at Barclays wrote in a note to clients, adding they have cut their 2014 growth forecast for China to 7.2 percent from 7.4 percent.

“Notably, it comes just after recent remarks by Premier Li that the government was comfortable with the current pace of growth, that its focus was on employment instead, and that it would maintain ‘prudent’ policies.”

Indeed, there are worries that Beijing may be reluctant to provide additional stimulus for now, although many suspect the Chinese authorities will be forced to do should growth threaten to undershoot the official 7.5 percent target significantly.

The bearish Chinese data has added to worries about a 40-percent slide in iron ore prices .IO62-CNI=SI this year and further soured sentiment for commodity currencies.

Not surprisingly, the Australian dollar came in the cross hairs of sellers, falling to within a whisker of 90 U.S. cents AUD=D4 and extending a decline from 94 cents early this month.

The other major currencies were steadier with the U.S. dollar holding just below a six-year peak of 107.39 yen JPY= set on Friday. The euro was flat at $1.2958 EUR=, having last week slumped to a 14-month trough of $1.2859.

There has been strong demand for the greenback as investors positioned for a slightly more hawkish shift from the Federal Reserve this week at its Sept. 16-17 policy meeting.

This has driven U.S. Treasury yields higher, with the 10-year US10YT=RR popping above 2.6 percent on Friday in its biggest weekly rise in over a year.

“The USD rally, and other market moves, have formed around an expectation that the Fed will begin preparing the market for an earlier than (market) priced rise in rates,” said Emma Lawson, senior currency strategist at National Australia Bank.

“It will require a confirmation of that expected language change, and possible forecast change, to maintain the USD gains seen so far.”

Sterling remained on tenterhooks just days out to the Sept. 18 referendum on independence for Scotland, with polls showing both “Yes” and “No” camps pretty much running neck and neck.

A win for the “Yes” campaign could result in the end of the 307-year-old union with England and the break-up of the United Kingdom.

The pound last traded at $1.6257 GBP=D4, but remained volatile after skidding to a near 10-month low of $1.6052 last week.

Broad U.S. dollar strength coupled with worries about demand knocked crude oil prices lower. U.S. crude CLc1 fell $1.28 to $90.99 a barrel -Reuters

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