Asian share gains fade after China GDP, Europe could be brighter

By Lisa Twaronite

TOKYO (Reuters) – Asian shares languished after giving up small gains on Tuesday, as modest relief on data showing the Chinese economy grew slightly more than expected was replaced by lingering concerns of weakening momentum in the world's second-biggest economy.

European shares might fare better at the open, with financial spreadbetters predicting Britain's FTSE 100 would open up 0.1 percent, while Germany's DAX and France's CAC 40 were each seen up 0.2 percent.

"Today's session in Europe was set to take a fairly strong lead from the U.S., and open significantly higher this morning, but Chinese Q3 GDP data appears to have taken some of the edge off," Michael Hewson, chief market analyst at CMC Markets, wrote in a note to clients.

China's gross national product expanded 7.3 percent between July and September from a year earlier, slightly above expectations but slower than the 7.5 percent clocked in the second quarter.

It was also the weakest growth rate in nearly six years, putting at risk Beijing's official annual growth target for the first time in 15 years and adding to worries that China is becoming a drag on the global economy.

"The data was better than I expected, more optimistic than we thought. But we definitely cannot achieve the 7.5 percent growth target this year," said Lin Caiyi, chief economist at Guotai Junan Securities in Shanghai.

Other data showed factory output rose 8.0 percent in September from a year earlier, beating expectations for a 7.5 percent increase and up from August's six-year low of 6.9 percent.

However, fixed asset investment and retail sales figures were weaker than expected, suggesting that Beijing still has reason to announce a fresh round of economic support measures though analysts don't see aggressive stimulus steps.

MSCI's broadest index of Asia-Pacific shares outside Japan erased modest gains made after the Chinese figures, and bobbed around the previous session's close. The Shanghai Composite index slipped 0.4 percent.

Japan's Nikkei stock average extended losses and closed down 2 percent as the yen strengthened and investors locked in profits after the previous session's 4 percent rally. The market also latched on to vague comments from welfare minister on a $1.2 trillion public pension fund as an excuse to take profits from outsized gains the previous day on hopes of more stock buying by the fund.

Wall Street marked solid gains overnight despite a quarterly earnings miss from IBM, and Apple Inc posted a better-than-expected 12 percent jump in revenue after the close.

Early on Monday, Dallas Federal Reserve President Richard Fisher told CNBC television that last week's turbulent trading should not stop the Fed from ending its third round of quantitative easing. Dallas Fed President Richard Fisher also wrote in an Economic Letter released Monday the economy could be fully recovered from the effects of the financial crisis and recession as early as next year.

The consensus view is that the Fed will decide to wrap up its bond purchases for QE3 later this month, at its Oct 28-29 policy meeting, while short-term interest rates futures implied markets do not expect the U.S. central bank to raise rates until late 2015.

Those expectations, combined with fears about the Ebola virus and fighting in the Middle East, have kept benchmark Treasury yields not far above 2 percent, and capped the dollar's gains.

The yield on benchmark 10-year notes slipped to 2.137 percent in Asian trade, compared to Monday's U.S. close of 2.183 percent.

The dollar skidded about 0.6 percent against the yen to 106.29 yen, while the euro added 0.2 percent to buy $1.2827.

The Australian dollar, often seen as a liquid proxy of China's growth prospects given Australia's large trade exposure to the Asian giant, jumped a quarter of a U.S. cent after the Chinese data and held onto to much of those gains.

The Aussie rose to a session high of $0.8828, and was last up about 0.5 percent at $0.8824.

In commodities trading, spot gold added about 0.3 percent to $1,249.60 an ounce, bolstered in part by renewed physical demand related to Diwali, India's major bullion-buying event this week.

Brent crept down slightly to $85.33 a barrel, while U.S. crude inched up to $82.73.