Asian shares ease with eyes on US

TOKYO (AFP) - Asian stock markets slipped back in early trade Friday as players locked in recent gains, with concerns re-emerging over the US mortgage sector.

Regional trade was subdued as players took a wait-and-see approach to further developments in the United States, in particular the release later Friday of US new home sales data.

The Chinese market provided a silver lining, however, as the benchmark Shanghai Composite Index put on another robust performance in the morning on strong corporate earnings growth.

"Thin trading underlines investor doubts that we will fall much further from here," said Hiroichi Nishi, equities manager at Nikko Cordial Securities in Tokyo.

"But bargain-hunting is expected to keep shares well supported, as some investors take the view that the worst of the fallout from the US subprime loans problem is over," he said.

Global markets have taken a beating this month on fears that damage from default US "subprime" mortgages -- loans to customers with patchy credit histories -- will drain the cash flow to the broader economy.

Worries resurfaced Thursday after the head of Countrywide Financial, the biggest mortgage lender in the US, was quoted as saying the subprime problems would tip the world's largest economy into recession.

Asia's largest bourse in Tokyo was down 0.33 percent in morning trade, although the benchmark Nikkei-225 index was still well above the key 16,000-point level which it regained in Thursday's strong rally.

Hong Kong shares were also soft, with the Hang Seng Index opening down 1.1 percent. Australia's S&P/ASX 200 was down 0.7 percent and South Korea's KOSPI index was off 0.96 percent.

However, the Shanghai Composite Index was up more than one percent in early trade the day after breaching 5,000 points for the first time on a strong outlook for companies in China's soaring economy.

Overnight, Wall Street gave up early gains, with the Dow Jones Industrial Average closing essentially flat, after the US Federal Reserve injected another 17.25 billion dollars into the financial system.

The Fed was aiming to ease a credit squeeze, but some dealers said the move made them fear that credit problems were more extensive than believed.

The Bank of Japan, which has also pumped billions of yen into its financial system, on Friday withdrew 300 billion yen (2.6 billion dollars) out of its money market, the first time it mopped up liquidity in seven days.

Regional players believed in the long-term stability of the regional markets, but remained cautious for now, said Shane Oliver, head of investment strategy at AMP Capital Markets.

"Credit markets are yet to return to normal, suggesting that further monetary easing is required in the US," Oliver said in Australia.

"While the next few weeks may remain volatile for shares, a sustainable recovery is likely by the end of the year," Oliver said.

The sentiment was shared by Bank of Japan governor Toshihiko Fukui, who said Thursday it will take a while for the subprime loan debacle to settle down.

"Even if the (market) correction progresses is an orderly manner it will most likely take some time, and the process could also bring losses and pain," Fukui told reporters, after the bank kept Japan's super-low rate unchanged.