* China manufacturing activity slows in May
* Cyclical sectors weigh on equity indexes
* US Treasuries, gold do well as risk continues to be
slashed
(Repeats to more subscribers)
By Kevin Plumberg
HONG KONG, June 1 (Reuters) - The euro and Asian stocks
slid on Tuesday with creeping suspicion that a peak in the
recovery has passed and slowing growth in China and Europe in
the second half of the year will be obstacles to risky trades.
After the most volatile month of trading since the wake of
Lehman Brothers' failure in the fall of 2008, investors now
focused on pricing in to what extent reduced demand from the
more fiscally austere euro zone would hit production in
economies like China and South Korea.
Dealers brushed aside stronger-than-expected May export
growth figures from Korea, which precede the rest of Asia, and
solid Australian retail sales, taking more interest in
forward-looking manufacturing indexes from China and India.
China's factories scaled back production last month and
eased back hiring in response to a critical drop in new orders,
an official survey showed on Tuesday. []
"The result indicates weakening of momentum in the
manufacturing sector and confirms our expectation that GDP
growth will slow sharply in Q2 and continue decelerating in
Q3," Dariusz Kowalczyk, chief investment strategist with SJS
Markets in Hong Kong, said in a note.
The Australian dollar <AUD=> dropped ahead of a Reserve
Bank of Australia policy meeting, at which the central bank
that had led the way in rolling back stimulus is expected to
stay on hold and warn of economic uncertainty because of the
euro sovereign debt crisis. []
Declines in the equity markets were modest, though cyclical
sectors such as technology and consumer discretionary appeared
more vulnerable to selling pressure.
Japan's Nikkei share average fell 0.6 percent, with Fast
Retailing <9983.T>, which owns the Uniqlo casual-clothing line,
leading the index lower.
The Nikkei tumbled 11.7 percent in May, the largest monthly
drop since a 23.8 percent plunge in October 2008.
The MSCI index of Asia Pacific ex-Japan stocks
<.MIAPJ0000PUS>, which has been underperforming world equity
markets <.MIWD00000PUS> so far this year, slipped 0.6 percent,
with the IT sector the biggest drag.
U.S. stock futures were down 0.6 percent <SPc1> after a
long holiday weekend in the United States and Britain.
There were more than enough reasons to keep winding down
portfolio risk, especially after the European Central Bank
warned overnight of a "second wave" of writedowns at lenders of
up to 195 billion euros. []
The euro was down 0.4 percent to $1.2260 <EUR=>, about a
cent away from a four-year low hit against the dollar last
month. The currency is down 14 percent so far this year.
Traders were not in a mood to sell Treasuries or gold, with
risk reduction still the order of the day. The benchmark yield
on the U.S. 10-year note was at 3.30 percent <US10YT=RR>, down
around 50 basis points since the end of March when fears about
Europe's fiscal health really picked up.
Gold climbed 0.5 percent to $1,220 an ounce, having
rebounded about $45 in the last week.
(Editing by Kazunori Takada)
