TOKYO Most risk assets slid to 2013 lows on Thursday with sentiment rattled by overnight market talk of a hedge fund liquidating big positions in commodities, as well as worries the U.S. Federal Reserve could prematurely wind down its bond buying programme.
European markets are seen following Asia lower, with financial spreadbetters predicting London's FTSE 100, Paris's CAC-40 and Frankfurt's DAX would open down as much as 0.7 percent. U.S. stock futures were down 0.1 percent to suggest a weak Wall Street start.
The possibility of an earlier-than-expected end to the super-accommodative U.S. monetary easing scheme, which has underpinned global risk appetite, sparked dollar buying - pushing it to a three-month high against a basket of currencies. The euro hit a six-week low of $1.3242, while spot gold extended losses to touch a fresh seven-month low of $1,554.49.
London copper struck its lowest in nearly two months of $7,880 a tonne while crude oil extended losses after posting its biggest daily fall so far this year on Wednesday.
"Disagreement over the (Fed's) current path is causing concern for a market that demands certainty," said Ben Taylor, trader at CMC Markets.
Traders said the selling sparked overnight by the rumours that a hedge fund was forced to liquidate substantial commodity positions coincided with the release of the Fed's January 29-30 minutes which showed policymakers discussed the slowing or stopping of bond purchases aimed at reducing unemployment.
"We all heard the hedge fund rumour and price action appeared to back such a rumour, but nobody has seen hard news,"
said Yuji Saito, director of foreign exchange at Credit Agricole in Tokyo.
"The price action also happened at the same time as the Fed's minutes which suggested the risk of an exit (from quantitative easing), so it's natural that money which had fled the dollar was returning, such as from gold. I think the fallout from the Fed's minutes will continue this session, prompting some money to head towards the dollar," Saito said.
The MSCI's broadest index of Asia-Pacific shares outside Japan tumbled 1.8 percent, set for its sharpest one-day slump in seven months, dragged down by a 3 percent slump in its materials sector and a 2.4 percent slide in the energy sector.
The pan-Asian index reached its highest levels since August 2011 on Wednesday.
Resources-reliant Australian shares shed 2.3 percent for their biggest one-day fall since May as as mining, bank and energy stocks slumped, a day after they struck a 4-1/2-year high.
The Australian dollar was down 0.2 percent to $1.0233 after sliding 1 percent on Wednesday for its sharpest one-day drop in more than four months.
Hong Kong shares slid 1.8 percent while Shanghai shares tanked 3.4 percent on worries about Chinese monetary tightening and the extension of property ownership curbs.
Tokyo's Nikkei stock average ended down 1.4 percent, after closing on Wednesday at its highest since late September 2008.
Equities have been rallying since late last year after excessive pessimism over the euro zone debt crisis and U.S. fiscal tussle receded as positive growth signs emerged globally, from China and from debt-battered Europe, boosting investor sentiment.
The benchmark Standard & Poor's Index scaled its highest in more than five years earlier this week, while MSCI's all-country world equity index rose to its highest level since June 2008 on Wednesday, before retreating to trade down 0.7 percent after the Fed's minutes.
The minutes showed some Fed officials mulled tapering or ending the Fed's bond purchases before it saw a substantial improvement in the labour market.
SIGNS OF NORAMALISATION?
Some analysts saw the markets were ripe for taking profits after recent strong performances.
"It is not that the Fed decided to end its 'quantitative easing', but that there was a debate over the policy. But this served as an excuse for U.S. investors to take profits after recent Wall Street rallies," said Cho Byeong-hyun, an analyst at Tong Yang Securities.
Traders said poor performance in commodities, which lagged other asset classes in 2012 and had seen its peak in 2008 before the financial crisis, probably made investors wary of talk of a fund liquidating positions ahead of earnings for the last quarter, which could be weak.
The Thomson Reuters-Jefferies CRB index, a bellwether for commodity prices, fell 3.4 percent last year, extending an 8 percent rout from the previous year. So far this year the CRB is up 0.5 percent.
"Markets are normalising in the sense that price action and news are positively correlated, meaning if you think logically, you will be rewarded," said Goro Ohwada, president and CEO at Japan-based fund of hedge funds Aino Investment Corp.
"Previously, no action was the best reaction because markets often priced-in events or news well ahead of time and reacted in opposite direction after the fact. People are now feeling they should be proactive and that means more price swings, which is good for investors," he said.
U.S. crude fell 0.8 percent to $94.45 a barrel while Brent eased 0.5 percent to $115.07.
"Long position holders have been looking to sell for profit-taking," said Yusuke Seta, a commodity sales manager at Newedge Japan. "I guess this is a good time to sell."
(Additional reporting by Miranda Maxwell in Melbourne, Hyunjoo Jin in Seoul and Florence Tan in Singapore; Editing by Eric Meijer)