China rating cut hits Shanghai stocks but other Asia markets rise

HONG KONG: Shanghai and Hong Kong stocks tumbled Wednesday after Moody's cut its rating on China warning about its growing debt mountain, but most other Asian markets edged up following a positive lead from the US and Europe.

The ratings agency said its downgrade on the world's number two economy came because of the likelihood of a "material rise" in debt throughout the economy and as potential growth continues to slow.

Beijing has tried to address a toxic brew of unregulated and risky lending, which is increasingly viewed as a threat to global financial stability.

But analysts are unsure about leaders' willingness to push on with the reforms as huge borrowing has been a key driver of the growth the Communist Party relies on for political legitimacy. China's economy grew last year at its slowest pace in a quarter of a century and there are expectations it will continue to ease over the coming years.

"It is a psychological blow that China will not take kindly to and absolutely speaks to the rising financial pressures in China," Christopher Balding, an associate professor at the HSBC School of Business at Peking University in Shenzhen, told Bloomberg News.

While Moody's also upgraded China's outlook to stable from negative, equity traders sold up.

Shanghai, which has already been under pressure since last month on worries about a crackdown on leveraged trading, fell one percent, while Hong Kong lost 0.4 percent. The yuan fell 0.1 percent against the dollar.

- Elevated concerns -

But elsewhere, investors tracked a Wall Street gain. Tokyo finished the morning 0.5 percent higher, while Sydney put on 0.2 percent, Singapore gained 0.1 percent and Seoul also added 0.2 percent.

Wellington and Taipei were each comfortably higher.

US stocks rose for the fourth straight session after Donald Trump's administration unveiled a 2018 budget that includes billions of dollars worth of cuts over 10 years but also a huge rise in military spending.

There was little carry-over from Monday's terror attack in Manchester that killed 22 people including children at a concert, although Stephen Innes, senior trader at OANDA, said in a note "the initial market response is subdued on the surface, but concerns about future attacks remain elevated".

On currency markets the euro continues to press ahead as uncertainty about future US policy -- linked to recent crises that have hit Trump -- comes up against a string of upbeat eurozone data including Tuesday's economic growth and jobs creation.

Attention turns later in the day to the release of minutes from the Federal Reserve's most recent policy meeting, hoping for a handle on its plans for interest rate hikes following a number of weak indicators lately.

Among the weak points is inflation, which Minneapolis Fed president Neel Kashkari described as going in the wrong direction.

- Key figures around 0230 GMT -

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Tokyo - Nikkei 225: UP 0.5 percent at 19,707.87 (break)

Hong Kong - Hang Seng: DOWN 0.4 percent at 25,305.77

Shanghai - Composite: DOWN 1.0 percent at 3,031.66

Euro/dollar: UP at $1.1190 from $1.1181 at 2100 GMT

Dollar/yen: DOWN at 111.80 yen from 111.82 yen

Pound/dollar: UP at $1.2970 from $1.2960

Oil - West Texas Intermediate: UP four cents at $51.51 per barrel

Oil - Brent North Sea: UP five cents at $54.20 per barrel

New York - Dow: UP 0.2 percent at 20,937.91 (close)

London - FTSE 100: DOWN 0.2 percent at 7,485.29 (close)