Asian shares sank in a sea of red on Tuesday as speculation of US rate rise as early as September hit emerging markets generally, while failing to give a lasting lift to the dollar.

A steady start soon gave way to broad selling with MSCI’s index of Asia-Pacific shares outside Japan shedding 0.8 per cent to a fresh 10-week low.

Indonesian stocks led the way with a drop of over 3 per cent, while the Philippines shed 2.1 per cent and Japan’s Nikkei 0.8 percent. The losses were a boon to sovereign bonds as risk aversion boosted prices for Japanese, Australian and US debt.

China inflation data

China reported another soft reading on inflation as the consumer price index slipped 0.2 per cent in May from the month before, putting annual inflation at 1.2 per cent.

The tame inflation figures fed expectations that Beijing will add more policy stimulus. Investors were still unnerved by this symptom of weak demand and their selling pulled stocks away from seven-year highs. The Shanghai and CSI300 indices were both off 1/2 per cent.

MSCI inclusion

Investors were also waiting nervously to see if MSCI will add Chinese shares to its global index. An announcement is due later Tuesday on whether MSCI will include China ‘A’ shares in its Emerging Markets Index, either partially or in full.

Analysts at HSBC estimate a partial inclusion of China A shares would lead to passive inflows of around $3 billion, while a full inclusion could see demand worth at least $47 billion.

The addition of China would likely hurt markets in Korea, Taiwan, and India in terms of index weights and flows, they added.

Europe’s biggest bank, HSBC Holdings, confirmed weeks of speculation by announcing cost cuts of up to $5 billion and the loss of up to 25,000 jobs to improve its sluggish performance.

On Wall Street, the Dow had ended Monday down 0.46 per cent, while the S&P 500 lost 0.65 per cent and the Nasdaq 0.92 per cent.

Applemusic service

Apple weighed most on the Nasdaq Composite and the S&P 500. It was down 0.66 per cent after the iPhone maker unveiled a new music service.

Greek debt crisis

There was the usual caution over Greece where interminable debt talks showed no sign of ending soon.

The Greek government did say it was ready to negotiate a settlement acceptable to both sides by the end of this month, just three days after Prime Minister Alexis Tsipras told his parliament the latest proposal from the EU and IMF was “absurd’’.

Yet there was no new proposal from Athens that its creditors could agree to, an EU official said.

Germany industrial output

There was better news from Germany where industrial output beat expectations and helped ease fears of deflation.

Yields on German 10-year paper climbed to 0.89 per cent, while those on 10-year Treasuries dipped to 2.37 per cent in Asia. As a result the premium offered by US debt narrowed to around 148 basis points, having been as wide as 190 back in March.

Weak dollar

The dollar also took a hit from reports President Barack Obama had called the high currency a problem in talks at the G7, though the White House later denied he had ever said it.

Federal Reserve and other officials have expressed concerns about dollar’s strength impact on growth and exports.

The euro benefited from the dollar’s pullback, rising to $1.1314 and recovering all of Friday’s drop to $1.1048. The dollar dipped a little on the yen to 124.54, still within striking distance of the recent 13-year high at 125.86.

The dollar index dipped 0.22 per cent to 95.090 having shed 1.1 per cent on Monday.

Crude oil, gold

In commodity markets, oil steadied after being hit by a slump in Chinese demand and worries that OPEC’s decision to pump crude without restraint could prolong the current supply glut.

US crude futures bounced 27 cents to $58.41 a barrel, while Brent added 25 cents to $62.94.

Gold gained on the softer dollar to reach $1,175.88 an ounce.

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