* MSCI Asia ex-Japan slips 1.8 pct to fresh 9-1/2-month low
* Nikkei gives up early gains as China worry sets in
* China money market rates ease but remain elevated
* Dollar hits 2-week high against basket, hits commodities
* European shares seen consolidating
By Chikako Mogi
TOKYO, June 24 (Reuters) - Chinese shares dragged Asian
bourses to a fresh 9-1/2-month low on Monday as investors
worried about Beijing's economic and financial stability and
markets scrambled to price in the Federal Reserve's plan to slow
its stimulus drive later in 2013.
European stocks were seen consolidating after last week's
losses, with financial spreadbetters predicting London's FTSE
100, Paris's CAC-40 and Frankfurt's DAX
would open little changed.
But a 0.6 percent drop in U.S. stock futures pointed
to a weak Wall Street open.
MSCI's broadest index of Asia-Pacific shares outside Japan
fell 1.8 percent to its lowest since early
September, after posting its worst week since May 2012 with a
drop of 4.5 percent last week. Most of the region's stock
indexes are now well into oversold territory.
China bank shares led the downward spiral after official
news reports at the weekend suggested Beijing would continue to
address the risks of shadow banking, which was behind the
central bank's withholding of funds to the money market last
The People's Bank of China bank exacerbated nervousness by
saying that liquidity in the country's financial system is
"reasonable." It has also pledged to "fine tune" existing
"prudent" monetary policy.
Hong Kong shares fell 2.4 percent and Shanghai shares
plummeted 5.4 percent. The Shanghai financials sub-index
was down 7.1 percent, headed for its worst single day
loss since November 2008.
"I think the market is expecting 'fine-tuning' to mean a
tightening of liquidity moving forward, especially after the way
official media talked about shadow financing over the weekend,"
said Cao Xuefeng, Chengdu-based head of research at Huaxi
China's volatile money market rates kept investors jittery
about the intentions of the Chinese authorities, as the recent
spike in market rates compounded fears of a
sharper-than-expected slowdown in the world's second-largest
China's weighted average overnight bond repurchase rate
, a measure of the cost of funds, eased to 6.64
percent from Friday's close at 8.89 percent. The rate had been
around 4 percent for much of 2013 until this month.
"The Chinese authorities are purposefully doing this to let
investors be aware of the pain that must accompany the
structural reforms the government is trying to pursue, so
investors shouldn't be complacent about the government avoiding
a hard landing," said Xiao Minjie, an independent economist in
Australian shares tumbled 1.5 percent, dragged by
concerns about slowing growth in China, its main export market.
A weaker yen helped buoy Japan's Nikkei stock average
in early trade, but the Nikkei surrendered gains and
ended down 1.3 percent as investors remained skittish after last
week's global market rout and the fresh tumble in Chinese
"The Chinese market changed the mood completely," said Kyoya
Okazawa, head of global equities and commodity derivatives at
BNP Paribas in Tokyo. "Global markets have just started pricing
in the end of China's high-growth period and investors are
backing away from emerging markets."
Going into the Fed's June meeting, investors continued to
take money out of emerging-market fund groups in the week ending
June 19, EPFR Global said on Friday.
Asian credit markets were also unsettled, with the spread on
the iTraxx Asia ex-Japan investment-grade index
widening by 20 basis points.
DOLLAR SOLE OUTPERFORMER
The dollar outshone all other asset classes and strengthened
broadly, in turn weighing on dollar-based commodities prices, on
the prospect of rising yields and an improving U.S. economy
which has allowed the Fed to suggest a major policy reversal.
Financial markets sold off last week after Fed Chairman Ben
Bernanke said that with the U.S. economy showing signs of
recovery, the central bank may start scaling back its huge
monthly bond-buying plan which was aimed at keeping bond yields
down and supporting the economy.
The Fed's strong accommodative stance has also encouraged
investment in riskier assets such as shares.
The dollar rose 0.6 percent against the yen at 98.48,
steadily moving away from its 10-week low of 93.75 yen hit
earlier in the month.
Traders said the prospect of diverging yield directions will
support the dollar against the yen.
U.S. Treasuries extended last week's dismal performance,
with the 10-year yield rising to 2.5928 percent to a
near two-year high, after the benchmark yield posted its biggest
weekly rise since November 2001 last week.
"A better economic outlook will eventually need to be priced
into the short end of the yield curve. This suggests that there
is a catch-up trade for the USD versus low-yielding currencies
(such as the yen)," Barclays Capital said in a research note.
Against a basket of major currencies, the dollar index
rose 0.4 percent to a two-week high after ending last
week up 2.2 percent for its biggest weekly gain since early
Spot gold slumped 1.2 percent to $1,281.39 an ounce,
approaching its lowest since September 2010 of $1,268.89 touched
U.S. crude futures fell 0.4 percent to $93.32 a
barrel and Brent shed 0.6 percent to $100.35.