The Australian sharemarket lost ground as Chinese property and credit market jitters moved back onto the radar and on mounting fears the US Federal Reserve would revise its interest rate outlook.
Trade was quiet ahead of the Fed policy announcement tonight, but the S&P/ASX 200 index twice erased losses but slipped to close 18 points or 0.33 per cent, at 5382.7after new-home prices in China fell in half the cities tracked by the government for the first time in two years.
Westpac economist Huw McKay said the weakest segment in Chinese real estate markets had unsurprisingly been the secondary market in the country’s tier three cities but new dwelling prices also “weakened visibly” in May, indicating that the downswing was more general with the “negative impulse” gaining momentum.
The Shanghai composite index was down 0.7 per cent at the close of the ASX.
Confirming fears of widespread fraud through the rehypothecation, or multiple pledging, of commodities as collateral for financing, Reuters reported that commodities trader CITIC Resources said more than 100,000 tonnes of alumina stored at Qingdao port was missing.
The port has been at the centre of investigations into missing copper collateral stockpiles, the news of which has prompted banks to halt lending aimed at circumventing the clampdown on shadow bank lending activities to avert a financial crisis.
In Tokyo the Nikkei index was up 0.9 per cent.
The Australian dollar slipped to US93.30¢ as the Chinese jitters and US rate fears supported the US dollar.
However, government 10-year yields climbed 3.9 points to 3.737 per cent, following the 4 points rise in benchmark US 10-years to 2.64 per cent following the surprise rise in US consumer inflation last night to 2.1 per cent.
“With the US labour market improving, and the Fed’s other mandate being stable prices, these types of inflation pick-ups will make it difficult for the Fed to ignore,” National Australia Bank currency strategist Emma Lawson said.
However, economists note that the Fed’s preferred inflation measure is the personal consumption expenditure deflator which has risen, but not yet by as much as CPI, prompting some to believe the Fed will remain somewhat “dovish”.
Markets ignored the 6.5 per cent slump in US housing starts similar drop in building permits last month, an historically strong period for the building sector.
Dalian iron ore futures halved early gains to trade 0.4 per cent up, while spot iron ore firmed 0.3 per cent to $US89.30 a tonne on Tuesday, copper was steady at $US6700 a tonne and gold rose $US3 to $US1267 an ounce.
Australia’s biggest oil and gas producer Woodside Petroleum experienced a steep share price fall after its biggest shareholder, global oil giant Royal Dutch Shell, sold almost all of its stake in the company.
This dragged the energy sector and the wider share market lower.
IG analyst Chris Weston said the falls were accompanied by profit taking by bank investors, ahead of a US Federal Reserve policy meeting.
"Ultimately this is a market which is treading water ahead of the FOMC meeting tonight,” Mr Weston said. "Some of the weakness dragging down the market is in the banks."
Woodside shed $1.95 to $40.90, while Santos dropped 19 cents to $14.31 and Oil Search was eight cents lower at $9.69.
Commonwealth Bank dropped 24 cents to $81.00, National Australia Bank shed 13 cents to $33.01, Westpac lost 30 cents to $33.84 and ANZ was 19 cents weaker at $33.74.
The materials sector remained resilient despite concerns about the Chinese economy, as bargain hunters took advantage of recent price falls caused by a slump in iron ore prices.
Fortescue Metals gained eight cents to $4.02, Rio Tinto added 45 cents to $57.90, but BHP Billiton dropped eight cents to $35.28.
David Jones gained two cents to $3.90 after shareholders in South African retailer Woolworths Holdings approved its $2.2 billion takeover of the department store chain.
Solomon Lew has also taken a near 10 per cent stake in David Jones, ahead of its shareholder vote on the takeover.
Mining contractor Mineral Resources dropped 20 cents to $9.35 after its bid to take control of iron ore explorer Aquila Resources failed.
Aquila shares gained 22 cents to $3.35.
The broader All Ordinaries index was down 16.8 points, or 0.31 per cent, at 5363.9.
The June share price index futures contract was eight points lower at 5390, with 59,429 contracts traded.
National turnover was 1.8 billion securities worth $6.5 billion.