Tokyo: Asian shares and the euro fell on Thursday on concerns about global growth driven by higher oil prices and data showing the eurozone may slip into recession, fanning fresh worries about Greece's debt restructuring challenges.
MSCI's broadest index of Asia Pacific shares outside Japan slid 0.6 percent, having consolidated from recent rallies after the much-awaited deal for a 130 billion euro Greek bailout was sealed earlier in the week. Sectors sensitive to growth cycles, including technology and materials, underperformed.
Japan's Nikkei average fell 0.1 percent, after scaling its highest since early August on Wednesday.
"Now that the Greece's second rescue package has been decided and priced into the market, markets are already looking for the next problem," said Yoshihiko Tabei, general manager of capital markets at Kazaka Securities.
"And that next problem is Europe's fiscal reform and how those austerity measures will be achieved across the bloc."
Data from Japan showed manufacturing sentiment in February slid to its lowest since the aftermath of the March 2011 earthquake, indicating the world's No.3 economy may struggle to recover quickly from a slump on weak global demand and a strong yen, a Reuters poll showed on Thursday.
This followed Wednesday's weak eurozone service sector activity, which weighed on U.S. and European shares. German IFO business climate for February due later this session, seen improving slightly, will offer more clues on Europe's economy.
Markit's Eurozone Services Purchasing Managers' Index shrank unexpectedly, reviving fears of the economy sinking into recession and raising doubts over the Greece's ability to revive its economy and push fiscal reforms needed under the just-agreed bailout programme.
Fitch became the first ratings agency to make a widely expected downgrade of Greece after a bond swap agreement, putting Greek bank shares under heavy selling pressure on worries over their recapitalisation.
The euro stood at USD 1.3247, struggling to push beyond a near two-week high of USD 1.3293 reached on Tuesday after the Greek deal. The dollar hung near a seven-month high against the yen of around 80.40 yen hit on Wednesday.
But the rise in oil prices lent some support to the single currency against the dollar, due to reserve managers potentially recycling their dollar revenues into euros as oil prices rise, analysts at BNP Paribas wrote in a note.
The escalating Iranian nuclear row, which has helped push up oil prices 11 percent this year, also returned to the radar for global investors.
The U.N. nuclear watchdog ended its latest mission to Iran after talks on Tehran's suspected secret atomic weapons research failed, a setback likely to increase the risk of confrontation with the West.
US crude futures were down 46 cents to USD 105.82 a barrel on Thursday, after settling at a nine-month high, while Brent crude eased 22 cents to USD 122.68 a barrel, after also settling at the highest in nine months.
"While the lift in the oil price is in line with a lift in demand, the magnitude of the lift is greater than we would expect suggesting prices are a headwind," ANZ Bank analysts said in a report.
They planned to reduce positions anchored by the industrial cycle, such as commodities, and tilt to assets that benefit from central bank policy support, such as bonds and corporate credit.
Asia not overbought
Credit Suisse Group analyst Sakthi Siva said in a report that Asian equities were not yet overbought by foreign investors.
"With MSCI Asia ex-Japan already up 15 percent so far this year, a key concern of investors is whether a tactical correction is likely," Siva said.
While net foreign buying in Emerging Asia excluding China has reached USD 18.5 billion year-to-date, above net foreign selling in all of 2011 of USD 16 billion, their purchases as a percentage of market capitalisation still stood well below a year ago at 0.2 percent compared with 1.6 percent in January 2011 and 2.2 percent in April 2010.
On this measure, Taiwan looked oversold at -0.8 percent of market capitalisation, followed by Korea at 0.2 percent. The Philippines looked the most crowded with net foreign buying at 1.1 percent of market capitalisation and Thailand and India were starting to look overbought, Siva said.
In Asian credit markets, a pause in risk taking pushed spreads on the iTraxx Asia ex-Japan investment-grade index wider by 3 basis points early on Thursday.