Asian shares fell for a second successive day on Thursday as concerns about growth prospects in the world's two largest economies, the United States and China, prompted investors to trim their risk exposure ahead of the end of the quarter.
Commodity-linked assets were hurt, with crude extending losses and dragging oil-related Chinese shares lower, while weakness in Chinese markets weighed on the Australian dollar due to worries of lower demand from Australia's single largest export market.
MSCI's broadest index of Asia Pacific shares outside Japan fell 0.8%, retreating from a one-week high hit earlier this week. Still, the index is set for a quarterly gain of about 11% at current levels, the best showing since the third quarter of 2010 and the best first quarter in 21 years.
Japan's Nikkei share average slipped 0.8%, moving further away from a one-year high marked on Tuesday, but was set for its best January-March quarter in 24 years.
The Standard & Poor's 500 Index was also on track to post its best first quarter in 14 years.
"I think China will see a temporary slowdown, which will trigger monetary and fiscal easing, and overall, the landing of Chinese economy will be soft," said Dariusz Kowalczyk, senior economist and strategist, Asia ex-Japan, at Credit Agricole CIB.
Disappointing results from consumption-related companies sent the Shanghai Composite Index down 2.7% on Wednesday for its worst day since last November. Shanghai shares were down 0.5% on Thursday and Hong Kong shares fell 1.2%. More earnings are due this session, including Bank of China and Industrial and Commercial Bank of China.
"With the Chinese stock markets under pressure, the outlook on AUD will unlikely turnaround until we see some confirmation that the Chinese economy is not weakening too much and which should be affirmed by the release of the Chinese PMI (on Sunday)," said analysts at BNP Paribas.
The Australian dollar fell 0.3% to $1.0356, well off a one-week high around $1.0557 reached on Tuesday. The euro steadied around $1.3313.
Data on Wednesday showed new orders for U.S. durable goods increased only modestly in February, below analysts' forecasts, while a gauge of future business investment also fell short of expectations, raising the prospect that economic growth in the first quarter could be lacklustre.
The weak data sent copper down more than 2% on Wednesday, as it raised doubts about the pace of recovery in the world's largest economy. Copper inched up 0.4% to $8,346 a tonne on Thursday, but gains were capped by growth worries.
EUROPE IN RADAR
Investors were reminded of the difficulty in resolving the euro zone's debt crisis on Wednesday when European Central Bank Governing Council member Jens Weidmann, who also heads Germany's Bundesbank, said that raising the firewall around stricken euro zone members would only buy time and end up running into financial and political constraints.
His warning preceded a meeting of European Union economic and financial affairs ministers in Copenhagen on Friday and Saturday.
"We are particularly bearish on the EUR, as we expect a re-emergence of sovereign concerns, and we also see downside for the AUD and modest weakness for CAD," Morgan Stanley said in a research note.
Asian credit markets weakened, widening the spread on the iTraxx Asia ex-Japan investment-grade index by 4 basis points.
