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HONG KONG: A surprise rate hike from the Reserve Bank of India triggered fears that other central banks in Asia may step up inflation-fighting efforts, sending shares lower across the region Monday.
Analysts had widely expected the RBI to raise rates soon, but the timing of Friday's 25 basis-point rise for its key lending and borrowing rates, between policy meetings, caught markets off guard.
"India's surprise rate hike may renew concerns about the prospect of an earlier-than-expected rate increase by China," Kim Seung-han at HI Investment & Securities in Seoul told Dow Jones Newswires.
Markets have nervously watched China after it took steps to calm inflationary pressures by repeatedly ordering banks to increase their capital reserves since December - limiting the amount of money they can lend.
Hong Kong was down 1.94 per cent in morning trade, Singapore slipped 0.52 per cent and Seoul was off 1.15 per cent. Taipei fell 1.09 per cent but Shanghai edged 0.11 per cent higher.
Markets in Japan were closed for a public holiday.
In Sydney, resource sector weakness dragged shares 0.68 per cent lower.
Arrow Energy dropped 19 cents to A$5.10 (US$4.67) despite a sweetened joined takeover offer from Shell and PetroChina.
The Reserve Bank of India increased short-term rates from record lows late Friday to battle near double-digit annual inflation amid fast-strengthening industrial output.
Expectations had been for a rate hike at the bank's scheduled policy review on April 20 but the RBI said in a statement that inflation had "been a source of growing concern."
The wholesale price index (WPI) in Asia's third-largest economy was 9.89 per cent in February, well above the central bank's own estimate of 8.5 per cent by the end of the current financial year this month.
Gold opened sharply lower on the news at US$1,104.00-US$1,105.00 an ounce, down from Friday's close of US$1,124.00-US$1,125.00.
"There is more talk of inflation coming through, in other words, interest rates are on the rise," which could weigh on gold as India is a major consumer of the metal, said Investec head of trading Darren Heathcote.
Markets were also reacting to Friday's slump on Wall Street where cautious investors eyed the Indian rate move as a possible precursor to tightening action elsewhere and took profits, sending US shares down 0.35 per cent.
The euro remained weighed by concerns over Greece's fiscal problems in quiet trade with Japanese markets closed for a holiday.
The single currency fetched US$1.3510, from US$1.3535 in late New York trade Friday and stood at 122.27 yen from 122.47. The dollar was at 90.51 yen from 90.50.
Oil was lower. New York's main contract, light sweet crude for April delivery fell 49 US cents to US$80.19 and Brent North Sea crude for May delivery dropped 39 US cents to US$79.49 dollars.
- AFP/sc
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