UPDATE 9.55am: The Australian sharemarket is expected to remain under pressure ahead of the US Federal Reserve’s tapering decision this week and as regional markets fall sharply, following a plunge on Wall Street on Friday.
Japan's Nikkei index fell more than 2.5 per cent at the open in Tokyo this morning while the Hong Kong's Hang Seng index also dropped heavily, down 1.92 per cent.
Weaker-than-expected Chinese manufacturing data saw the local stock market close lower for the third straight week on Friday.
The HSBC purchasing managers' index on Thursday showed Chinese manufacturing activity fell to a six-month low in January, with a reading of 49.6, down from December's 50.5.
At the close on Friday, the benchmark S&P/ASX200 index was 22.1 points, or 0.42 per cent, lower at 5240.9 while the broader All Ordinaries index was down 21.2 points, or 0.4 per cent, at 5254.3.
That pressure is expected to remain until the Federal Open Market Committee's announcement on Thursday morning, Australian time, on whether it will further taper its bond-buying program.
The FOMC in December announced it would wind back its purchases to $US75 billion-a-month and the market expects that will be wound back further to $US65 billion-a-month, TD Securities head of Asia-Pacific research Annette Beacher said.
“It's all eyes on the FOMC,” Ms Beacher said.
“I think the stock market will stay under pressure just as we wait and see what the FOMC gives us.
“All the regional stock markets fell on the back of that Chinese manufacturing number so everyone has been pretty fragile ever since, no one is taking fresh positions at the moment.”
Ms Beacher said the Australian dollar would also remain under pressure this week.
The Australian dollar fell as low as 86.78 US cents - its lowest point since July 2010 - on the back of the weak Chinese data and comments from Reserve Bank of Australia board member Heather Ridout indicating a desire for the dollar to fall to 80 US cents.
“The pressure is still very much to the downside and the more the US tapers, the more that the US dollar will be strengthening against all the crosses, so I can't see the Aussie dollar rallying from here,” Ms Beacher said.