San Francisco Frontiers - Asian markets drop as China growth data fails to impress traders

The blockbuster 4.5 percent expansion, helped by above-forecast retail sales last month, revived optimism for an economic recovery in the country after its worst performance in decades last year.

The figures are the first snapshot since 2019 of a Chinese economy unencumbered by public health restrictions, which included months-long city-wide lockdowns that brought large parts of the country to a standstill.

The readings bode well for the world's second-biggest economy, and soothed some worries after inflation data last week indicated consumer activity remained sluggish.

However, below-forecast readings on industrial output and fixed asset investment suggested weaknesses remained in the economy and the recovery could be uneven.

"We expect to see higher GDP growth rate in upcoming quarters as a result of the low base from last year, and the annual growth target of five percent should be achievable," said Chaoping Zhu, at JP Morgan Asset Management.

"That said, some challenges still exist in the economy."

The Chinese economy remains beset by a series of problems including a debt-laden property sector, global inflation and the threat of recession elsewhere, and geopolitical tensions with the United States.

Craig Erlam at OANDA said: "It's not just the pandemic that the country is bouncing back from, confidence in the property market has been severely undermined and it will take time to recover."

Investors also continue to fret over Federal Reserve plans to hike interest rates as officials try to rein in US inflation, with top policymakers seeming to be split over how many more increases are needed.

- Focus on earnings -

Wall Street's three main indexes ended slightly higher in muted trade as investors there awaited the release of fresh earnings following broadly positive results from banking giants including JPMorgan and Citigroup.

A surprise jump in a closely watched index tracking New York state manufacturing added to the buying sentiment, while the VIX Index of market volatility dipped below 17 to its lowest since the start of last year.

"The subtle yet positive data beat goes on after last week's highlight reel was almost uniformly hopeful, including progress on inflation, better growth than expected, the possibility of fewer rate hikes, and some constructive big bank earnings," said SPI Asset Management's Stephen Innes.

But after a healthy run-up Monday, Asia struggled.

Shanghai, Tokyo and Jakarta rose but Hong Kong, Sydney, Seoul, Singapore, Wellington, Mumbai, Taipei, Bangkok and Manila were all negative.

London, Paris and Frankfurt rose at the open.

Focus now turns to the release of fresh US earnings this week from big-ticket names including Bank of America, Morgan Stanley, Johnson & Johnson, Netflix, Tesla, Ericsson and Nokia.

However, traders will still be nervously watching the reports from the financial sector following last month's banking turmoil that saw three regional US lenders go under and Credit Suisse taken over.

"The focus on the hundreds of regional banks reporting in coming days will be firmly on the extent of deposit outflows relative to street expectations," said Ray Attrill at National Australia Bank.

- Key figures around 0720 GMT -

Tokyo - Nikkei 225: UP 0.5 percent at 28,658.83 (close)

Hong Kong - Hang Seng Index: DOWN 1.0 percent at 20,567.53

Shanghai - Composite: UP 0.2 percent at 3,393.33 (close)

London - FTSE 100: UP 0.3 percent at 7,901.00

Euro/dollar: UP at $1.0949 from $1.0930 on Monday

Pound/dollar: UP at $1.2414 from $1.2376

Dollar/yen: DOWN at 134.41 yen from 134.46 yen

Euro/pound: DOWN at 88.19 pence from 88.29 pence

West Texas Intermediate: UP 0.5 percent at $81.21 per barrel

Brent North Sea crude: UP 0.5 percent at $85.15 per barrel

New York - Dow: UP 0.3 percent at 33,987.18 (close)

S.Jackson--SFF