Asian stock markets fell Thursday after China said it will curb overcapacity and excessive investment in industries such as steel and cement, adding to worries about whether a global economic recovery is sustainable.
Meager gains overnight on Wall Street also contributed to the increasingly cautious mood among investors after the strong rally in global markets since March. While economic indicators are turning positive, investors wonder if further gains in stock prices are warranted.
Wednesday's announcement that Beijing plans to cut capacity in steel and other sectors comes after economists had warned that China's 4 trillion yuan ($586 billion) stimulus package was creating a glut in a range of industries. In the long run, that may be positive for the Chinese economy, but in the short-term could mean less profit.
"They pumped trillions (of yuan) into the economy and the local economies leaders used the money to build steel mills that have no market," said Francis Lun, general manager of Fulbright Securities Ltd. in Hong Kong. "This is bad for the stock market."
"We'll probably see a temporary lull," he said. "In Hong Kong, people are ready to sell out because the market has risen so much this summer."
Hong Kong's Hang Seng index was down 258.33 points, or 1.3 percent, to 20,197.99 while Tokyo's Nikkei 225 average slid 188.55 points, or 1.8 percent, to 10,451.16.
Shanghai's Composite index, which has swung wildly over the last two weeks, was down a relatively moderate 0.4 percent at 2,954.91. South Korea's Kospi fell 1 percent and Australia's benchmark was flat.
Markets in Singapore and India were also down moderately.
On Wall Street Wednesday, stocks finished with tiny gains following positive reports on sales of home sales and big-ticket items, suggesting the world's largest economy is on the mend.
But investors in the U.S. didn't seem impressed with either report. Many have already factored in a recovery in the housing market, and the 4.9 percent gain in durable goods seems to have been driven by the government's recently expired "Cash for Clunkers" program that prompted thousands of people to trade in older cars for new ones.
The Dow Jones industrials rose 4.23, or 0.04 percent, to 9,543.52, while the broader Standard & Poor's 500 index rose 0.12, or 0.01 percent, to 1,028.12. The tech-heavy Nasdaq ended barely changed at 2,024.43.
Asian investors pay close attention to the American economy because it is a huge export market.
"The U.S. economy is showing signs of improvement," said Lun. "The one thing that hasn't improved is employment. That's the missing piece in the recovery."
Wall Street futures were down, suggesting a tepid opening Thursday in New York. Dow futures down 23 points, or 0.2 percent, to 9,503 while S&P futures slipped 3,2, or 0.3 percent, to 1,023.60.
Crude oil prices fell, with benchmark crude for October delivery down 26 cents to $71.17 a barrel.
In currencies, the dollar weakened further to 93.73 yen from 94.21 yen late Wednesday in New York. The euro was little changed at $1.4246.