By Andrew Galbraith
SHANGHAI (Reuters) – Asian shares drifted lower on Monday as signs of softening demand in China rekindled anxiety about the outlook for world growth, but Saudi Arabia's plans to cut production helped to halt a slide in oil prices.
MSCI's broadest index of Asia-Pacific shares outside Japan fell 0.07 percent, trimming earlier losses on a bounce in Chinese shares, but struggling to break into positive territory.Australian shares added 0.13 percent, while Japan's Nikkei stock index gained 0.11 percent.
A combination of weak factory-gate inflation data in China and low oil prices weighed on global stocks on Friday, dragging MSCI's gauge of global stocks to its worst day in two weeks. The index was last 0.09 percent lower.
Kevin Lai, chief economist for Asia ex-Japan at Daiwa Capital Markets, said there were genuine concerns from an equity market perspective about China's economic growth in general and its significant debt burden in particular.
"There's no way the economy can really can get back on a nice recovery path unless they can seriously compress the debt significantly … all this deleveraging we've been talking about hasn't really delivered any results," he said.
E-commerce giant Alibaba (NYSE:BABA) Group Holding Ltd added to the uncertain outlook in China, recording the slowest-ever annual growth in sales for its annual "Singles' Day" event,.
Its sales outlook has weakened amid rising trade tensions between China and the United States that have taken a bite out of China's economy.
An index tracking consumer staples firms in China was 0.95 percent lower, even as the blue-chip CSI300 index rebounded from last week's string of losses to gain 0.68 percent.
Risk asset markets have been under intense pressure of late as fears of a peak in earnings growth added to anxiety about slowing global trade and investment.
A spike in U.S. bond yields, driven by the Federal Reserve's commitment to keep raising borrowing costs, has also shaken emerging markets as investors poured money into U.S. dollar assets.
The Dow Jones Industrial Average fell 0.77 percent on Friday, the S&P 500 lost 0.92 percent and the Nasdaq Composite dropped 1.65 percent.
The yield on benchmark U.S. 10-year Treasury bonds closed at 3.189 percent on Friday.
The Wall Street losses came after the Fed held rates steady earlier in the week but stayed on track to tighten policy next month.
The Fed's stance disappointed some investors who had hoped that October's rout in equities might have prompted policy makers to take a more cautious approach on interest rates.
"Markets are pricing in a 25bp hike in December, with data flow suggesting pipeline inflation pressures are building," analysts at ANZ said in a morning note.
SAUDI PRODUCTION CUT
Taking some pressure off a sharp drop in oil prices last week, Saudi Arabia's energy minister said on Sunday that Riyadh plans to reduce its oil supply to world markets by 500,000 barrels per day in December, a global reduction of about 0.5 percent.
That helped to lift oil prices on Monday, with U.S. crude rising 1.08 percent to $60.84 a barrel and Brent crude gaining 1.34 percent to $71.12 per barrel.
However, Saudi Arabia's supply cut may prove to be a temporary solution to falling prices as global growth slows, with two of the world's biggest economies – Germany and Japan – expected to report a contraction in output in coming days.
"Supply-side surprises appear to be the main culprit, but concern that global demand is slowing may also be creeping into markets and weighing on risk appetite," the ANZ analysts said.
In currency markets, the dollar rose 0.18 percent against the yen to 114.03, and the euro was down 0.11 percent on the day at $1.1322.
The dollar index, which tracks the greenback against a basket of six major rivals, was up 0.12 percent at 97.022.
The British pound was off 0.35 percent to fetch $1.2929. Sterling has been under pressure over the past few weeks as investors worried over whether an orderly Brexit deal would be achieved.
Spot gold gained 0.07 percent to $1,210.09 per ounce.