Asia markets drop on China data, French elections

HONG KONG (MarketWatch) � Asia markets fell Monday after data showed Chinese manufacturing activity continued to contract in April, albeit at a smaller pace, with investors also wary before the outcome of French presidential elections and upcoming global economic events.

Hong Kong�s Hang Seng Index HK:HSI �dropped 1.8% to 20,624.39, China�s Shanghai Composite CN:000001 fell 0.8% to 2,388.59 and Australia�s S&P/ASX 200 index AU:XJO �fell 0.3% to 4,352.40.

Japan�s Nikkei Stock Average JP:100000018 �lost 0.2% to 9,542.17, South Korea�s Kospi KR:SEU slipped 0.1% to 1,972.63 and Taiwan�s Taiex XX:Y9999 �shed 0.4% to 7,481.09.

Losses in some Asian markets such as Hong Kong accelerated as European markets tumbled in early trading Monday.

Andrew Sullivan, principal sales trader at Piper Jaffray, said investors were cautious ahead of key events this week, including central bank policy-setting board meetings in the U.S. and Japan, as well as the outcome of the French election. Read more on the French elections.

French President Nicolas Sarkozy lost to Socialist candidate Francois Hollande in the first round of the Presidential elections, sparking concerns about the euro-zone�s debt crisis.

�People are worried� because if [Hollande] beats Sarkozy, he�s going to look to renegotiate a lot of the treaties France has signed... The European problem hasn�t gone away,� he said.

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China is quietly extending its influence among poor island nations in the South Pacific, encroaching on a region of strategic importance to the U.S.

Meanwhile, HSBC�s preliminary or �flash� reading of China manufacturing Purchasing Managers� Index showed Monday that activity improved in April from levels seen in March, but remained below the threshold of 50, indicating a contraction. Read more on China's HSBC initial PMI.

Hongbin Qu, chief economist for China at HSBC, said the improvement in factory conditions suggests earlier easing measures from Beijing have started to work and should ease concerns of a sharp growth slowdown.

Still, �the pace of both output and demand growth remains at a low level in an historical context, and the job market is under pressure. This calls for additional easing measures in the coming months. We expect monetary and fiscal easing to speed up� in the second quarter, Qu said.

Chinese property developers and financials retreated in Hong Kong after the HSBC data and amid political worries concerning Europe.

China Overseas Land & Investment Ltd. HK:688 CAOVY lost 2% in Hong Kong. On mainland bourses, Poly Real Estate Group Co. CN:600048 �dropped 1.6% in Shanghai and China Vanke Co. CVKEY �retreated 0.5% in Shenzhen.

Among financials, HSBC Holdings PLC HBC �HK:5 dropped 1.8%, China Life Insurance Co. HK:2628 LFC fell 2.8% and Ping An Insurance Group Co. of China Ltd. HK:2318 PNGAY gave up 3.3% in Hong Kong; in Shanghai, China Life CN:601628 �shed 0.8% and Ping An CN:601318 �lost 1.8%.

Shares of heavyweight China Mobile Ltd. CHL HK:941 lost 3% in Hong Kong, pulling back from the 52-week high they touched on Friday, after reporting only a modest increase in first-quarter profit. Read more on China's Mobile's result.

A number of stocks in the resource-sector stocks also declined after the HSBC data.

In Sydney, gold miner Newcrest Mining Ltd. AU:NCM NCMGF �fell 1.6% and BHP Billiton Ltd. gave up 0.5%. Cockatoo Coal Ltd. AU:COK �CKATF �tumbled 7.3% after announcing it won�t get a planned cash injection from SK Networks.

Elsewhere, Inpex Corp. IPXHF �JP:1605 �slipped 0.2% in Tokyo and Korea Zinc Co. gave up 1.1% in Seoul. Aluminum Corp. of China Ltd. ACH �HK:2600 CN:601600 fell 3.9% and Jiangxi Copper Co. JIXAY �HK:358 CN:600362 �lost 1.5% in Hong Kong; in Shanghai, they shed 1% and 1.3%, respectively.

Some steel makers managed to defy the trend. JFE Holdings Inc. JP:5411 �JFEEF �rose 2.6% in Tokyo, while Posco PKX �climbed 1.6% in Seoul and Bluescope Steel Ltd. AU:BSL �BLSFY �added 1.3% in Sydney.

JFE�s gains came despite reporting a net loss for the year ended March 31, as investors focused on the company�s cost reduction plans. Posco rose in spite of a 42% drop in first quarter profit, on news it expects an improved second-quarter. (Read more on JFE�s loss and Posco�s profit drop.)

Strategists at Barclays Capital recommended exposure to Asia�s steel sector, based on �first signs of a modest demand recovery in China and un-demanding valuations.� They named Posco as their top pick for the steel space.

Meanwhile, a firmer yen weighed on some exporters in Tokyo, with Nikon Corp. JP:7731 �NINOY �lost 1.8% and Nissan Motor Corp. JP:7201 �NSANY �gave up 1%.

Shares in Canon Inc. JP:7751 �CAJ �outperformed, rising 0.7%, after a Nikkei business daily report said that full-year operating profit is expected to swell by 20% following strong sales of single-lens reflex cameras.

Also moving higher, shares of Yakult Honsha Co. JP:2267 �shot up 11.7% after a weekend report in the Nikkei newspaper that French food company Group Danone SA FR:BN �DANOY �wants to increase its stake in the Japanese drink maker. Read more on the Yakult stake-buy report.