Asian equities closed mostly lower on Monday, with the Shanghai Composite significantly paring losses amid talk that Beijing will halt its controversial market intervention.
A report by The Financial Times over the weekend said Beijing will abandon large-scale share purchases, sparking concerns over more declines for A-shares and sending Dow futures tumbling by more than 200 points in the Asian session.
Beijing may now switch its focus from intervention to stopping those it believes are "destabilizing the market," the FT report said. Suspected state firm buying has propped up A-shares in recent sessions, resulting in two straight days of 5 percent rallies in Shanghai last week.
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Meanwhile, fresh commentary from Federal Reserve officials over the weekend created further uncertainty over when the U.S. central bank will finally tighten monetary policy. Fed Vice Chairman Stanley Fischer told CNBC at the Jackson Hole symposium that it was too early to tell whether the case for a September interest rate hike is compelling.
U.S. stocks saw a mixed close last week, with the and the Nasdaq eking out slim gains but the closed down 12 points. The S&P 500 also entered a Death Cross—often seen to indicate an impending bear market—with the 50-day moving average falling below the declining 200-day moving average for the first time since August 2011.
Shanghai down 0.8%
China's benchmark Shanghai Composite more than halved its losses after falling as much as 3.7 percent earlier in the day. Still, the index snapped a two-day winning streak. Meanwhile, Hong Kong shares finished the day 0.27 percent higher after swinging between gains and losses.
Attention was on Beijing's official August purchasing manager's index (PMI) report due on Tuesday. A Reuters poll expects manufacturing activity likely hit a three-year low at 49.7, which may exacerbate market losses. The private Caixin/Markit August PMI, which tracks smaller companies, is also on tap Tuesday.
A-shares of Bank of China, and Industrial and Commercial Bank of China fell 1 percent each after warning of rising bad loans last week.
Investors also reacted to supportive remarks from Premier Li Keqiang and new reforms over the weekend. In remarks published on Saturday, Li said China would "enact more targeted and responsive macro-regulation to offset downward economic pressure, [and] more robust reform and innovation efforts to energize the market."
Meanwhile, parliament passed a plan to cap outstanding local government debt at $2.5 trillion this year in an effort to stem escalating borrowing. Local governments racked up around $2.9 trillion in debt as of end-June, according to official estimates. Reforms like these will help restore investor confidence in the economy and markets, said analysts at ING in a morning note.
Nikkei 1.3% lower
Japan's benchmark index ended below the 19,000 level, retreating from a one-week closing high hit on Friday, after weak July industrial production figures. Released before the Tokyo market open, the report showed a monthly fall of 0.6 percent, missing expectations for a 0.1 percent rise and coming in well below June's revised 1.1 percent gain.
A stronger yen also hurt exporter shares, with Fanuc, Sharp and Komatsu all closing 3 percent lower.
Suzuki Motor fell 0.5 percent, reversing a 4 percent rally earlier in the session, after announcing it would buy back the 19.9 percent stake it sold to Volkswagen.
ASX down 1%
Australia's benchmark moved off Friday's eight-day closing peak, dragged down by steep losses among financials.
Australia New Zealand Banking and Commonwealth Bank of Australia closed down 2 percent each while Westpac and National Australia Bank both lost more than 1 percent.
The Reserve Bank of Australia (RBA) holds a policy review on Tuesday, but the majority of analysts don't expect any chance to the current 2 percent interest rate. But second-quarter gross domestic product released on Wednesday is likely to sway market sentiment. Spread-betting firm IG is anticipating a 2.2 percent annual gain, little changed from the previous quarter's 2.3 percent rise.
"The main uncertainty is whether the recent market turbulence and currency devaluation has influenced the RBA. Continued devaluation of the yuan could lead to much lower global inflation than currently forecast, and any mention of this in the statement would be significant," commented Angus Nicholson, IG's market analyst.
Kospi gains 0.2%
South Korean stocks erased losses in the final hour to hit a two-week closing high, extending gains into a fifth straight session.
Automakers rallied; Hyundai Motor climbing 3.5 percent while Kia Motors and Hyundai Mobis ended more than 2 percent higher.
Emerging markets
The Indian Sensex index closed 0.4 percent lower ahead of April-June gross domestic product due at 8pm SIN/HK. Median estimates are for a 7.4 percent rise in annual growth, a tad below the 7.5 percent rise seen in January-March, according to Reuters.
Malaysian markets were closed on Monday but the ringgit may draw attention on Tuesday after thousands of protesters marched in several major cities over the weekend calling for Prime Minister Najib Razak's resignation amid reports that he received nearly $700 million from debt-ridden state fund 1Malaysia Development Berhad. Najib has rejected the report, saying the money was a donation from a backer.