Asian markets down on Bernanke comments, China manufacturing

Asian markets were today rattled by hawkish comments by US Federal Reserve chairman Ben Bernanke as also reports of weak showing by China's manufacturing sector.

The double shock sent  stock prices down, the US dollar to three-year highs, and Japanese government bond yields to their highest in a year.

Stock and bond markets took their cue from the fall in US equities and Treasuries following Bernanke's remarks at a Congressional hearing which triggered worries of an expected reduction in US monetary stimulus.

The weakness in China's manufacturing sector heightened concerns about a delayed recovery in the world's second-largest economy. It added to the losses dragging MSCI's broadest index of Asia-Pacific shares outside Japan was down 2.1 per cent.

Japan's Nikkei index though remained volatile, up 1.5 per cent at one stage and down about 6 per cent in later trading.

However according to expectations of bookmakers European shares would decline sharply.

The dollar was down to a three-year high against a basket of currencies at 84.498 and an 11-month high versus the Australian dollar.

According to Gareth Berry, a currency strategist with UBS in Singapore, there was dollar buying on the back of superior growth prospects in the US economy and eventual tightening of monetary policy.

He added, though just because the dollar was rallying it did not mean risks had ceased.

Bernanke's testimony to the Joint Economic Committee of Congress and comments by Federal Reserve Bank of New York president William C Dudley pointed to a cautious approach, over  trimming the central bank's bond purchase programme too soon.

They said it was for the economy to show durable job gains in the face of falling government spending. According to many Fed officials, more labour market progress was needed before cutting $85 billion in monthly asset purchases, according to minutes of their last meeting.

Since the Fed start of a third round of bond purchases in September, the economy had added an average of 193,000 jobs per month, as against gains averaging 141,000 over the previous six months.

''Despite this improvement, the job market remains weak overall,'' Bernanke said, as he pointed to  historically high rates of long-term unemployment and declining labour-force participation.