Asian markets wobble ahead of Fed as China fears dent sentiment

HONG KONG, China — Asian investors trod cautiously Monday as they struggled to build on recent equity gains, with debate swirling around how big an expected US interest rate cut will be this week, while sentiment was being dragged by worries about the Chinese economy.

The yen edged to a new high since December ahead of the Federal Reserve decision on Wednesday and a policy meeting at the Bank of Japan two days later.

Data showing US inflation slowed more than expected last month to its weakest pace since February 2021 has sparked fresh talk that Fed officials will announce a bumper 50-basis-point cut and continue easing into the new year.

However, while bets on such a move have risen, some analysts warned that it could send a signal that decision-makers are worried about the economy, particularly after two readings showing the labour market was softening.

While bank officials have played their cards close to their chest, they have hinted that they are willing to discuss a bigger cut, while former New York Fed chief Bill Dudley said he thought "there's a strong case for 50".

Michael Krautzberger at AllianzGI said: "The Fed, like other central bankers, are now focused on economic growth rather than inflation risks and becoming increasingly worried about being behind the curve on policy -- cutting rates too late to avert a recession or sharper growth slowdown.

"Therefore, in our view, the risks of larger rate cuts at subsequent meetings this year cannot be discounted, especially if labour market activity deteriorates faster than currently expected and inflation continues to head towards target."

All three main indexes on Wall Street pushed higher Friday, with the Dow and S&P 500 within a whisker of their record highs.

But Asian investors were unable to extend the rally, with Hong Kong, Singapore and Wellington down but Sydney, Taipei and Manila edging up.

Trade was muted by holidays in Tokyo, Shanghai, Jakarta and Seoul.

On currency markets the yen hit 140.43 per dollar, its strongest level since the end of December, while gold remained at all-time highs after hitting a record $2,586.10 per ounce Friday.

Traders are keeping tabs on developments in China after more