* Dollar trims gains, commodity prices stabilise
* Some say reaction to China move may be overblown
* Focus shifting back to Fed
(Repeats to more subscribers)
By Sugita Katyal
SINGAPORE, Oct 20 (Reuters) - Asian stocks pared early
losses on Wednesday as markets recovered from an initial shock
to China's first rate rise in nearly three years that had
investors fretting it may be embarking on a policy tightening
cycle.
European shares were mostly flat after opening lower.
The dollar dipped against a basket of currencies, trimming
gains it made after the surprise rate hike by China spurred the
market to lower risk exposure, while commodity prices steadied
after falling sharply on Tuesday.
"China's tightening came as a shock, but the country's
intention doesn't seem to be a cooling of its economy, Instead
it has moved to prevent bubbles from bursting. It's rather
natural, if you look at it in the longer term," said Tomomi
Yamashita, senior fund manager at Shinkin Asset Management in
Tokyo.
"Financial markets are still supported by expectations of
further easing by the United States, with ample liquidity
helping assets such as bonds and commodities. The focus from
now on is whether these money flows will change course."
The MSCI index of Asia Pacific stocks outside Japan
<.MIAPJ0000PUS> was down 0.1 percent at 0725 GMT, after
trimming some of its losses suffered earlier in the day.
Japan's Nikkei average <> pared earlier losses but
still closed down 1.65 percent to book its lowest close in two
weeks after investors rushed to take profits on China's
unexpected tightening and after worries about some U.S. banks
pushed Wall Street lower.
Shanghai stocks <> ended flat after a volatile session
while Hong Kong <> came off its lows in the morning session
as investors took China's first interest rate hike since 2007
in stride.
Property stocks led the drop in China, with those in Hong
Kong <.HSNP> down 1.2 percent and the Shanghai property
sub-index <.SSEP> falling 4.6 percent.
FED BACK ON RADAR
The dollar index dipped 0.4 percent <.DXY> after climbing
more than 1.6 percent the previous day while the
commodity-sensitive Australian dollar rebounded 0.8 percent
<AUD=D4> after sliding more than 2 percent on Tuesday.
Some analysts said the market's reaction the previous day
was overblown, and with the Federal Reserve set to ease
monetary policy further as early as next month, any dollar
rebound would be short-lived.
"What I think will be short-lived is the weakness in Asian
and commodity currencies in particular," said Greg Gibbs, a
strategist at RBS in Sydney.
"I don't think the hike in China is too significant in
terms of actually slowing down growth there. I wouldn't view
that as a factor to be getting bearish on risk or bearish on
Asian growth."
The People's Bank of China, the central bank, said it would
lift its benchmark one-year lending and deposit rate, effective
on Wednesday, in a move some analysts said may suggest Beijing
and Washington are working together to ease global currency
tensions. [] []
Crude oil prices <CLC1> rebounded after falling more than 4
percent on the rate rise, while spot gold <XAU=> also
stabilised at $1,340.00 after sharp falls. []
[]
The yuan <CNY=CFXS> fell by more than 100 pips in morning
trade to 6.6558 per dollar, after the PBOC set the currency's
mid-point weaker in what was seen as an effort to prevent the
interest rate rise from attracting more inflows of speculative
capital.
(Editing by Kazunori Takada)
