Asia stocks hit 2021 lows as China skids, funds favour Wall Street - Reuters

An investor looks at an electronic board showing stock information at a brokerage house in Beijing, August 27, 2015. REUTERS/Jason Lee

• China stocks slide as Beijing tightens regulations
• Strong U.S. earnings underpin Wall St, much priced in
• Fed to meet in data-packed week, US$ supported

SYDNEY, July 26 (Reuters) - Asian shares skidded to their lows for this year on Monday as concerns over tightening regulations upended Chinese equities and strong U.S. corporate earnings sucked funds out of emerging markets into Wall Street.

Chinese blue chips .CSI300 shed 4.4% to their lowest since December, in what was also the biggest daily decline in more than a year, as the education and property sectors were routed on worries over tighter government rules.

"We believe China's economy, and specifically its financial system, will face significant risks in coming months due to the unprecedented tightening measures applied to the property sector," economists at Nomura warned in a note.

That dragged MSCI's broadest index of Asia-Pacific shares outside Japan .MIAPJ0000PUS down 2.0% to its lowest since last December. Japan's Nikkei .N225 did bounce 0.9%, but that was off a seven-month low.

In contrast, Nasdaq futures NQc1 were off just 0.1% from historic highs, and S&P 500 futures ESc1 were down 0.3%. EUROSTOXX 50 futures STXEc1 and FTSE futures FFIc1 both dipped 0.5%.

More than one-third of S&P 500 companies are set to report quarterly results this week, headlined by Facebook Inc FB.O, Tesla Inc TSLA.O, Apple Inc AAPL.O, Alphabet Inc GOOGL.O, Microsoft Corp MSFT.O and Amazon AMZN.O.

With just over one-fifth of the S&P 500 having reported, 88% of firms have beaten the consensus of analysts' expectations. That is a major reason global money managers have poured more than $900 billion into U.S. funds in the first half of 2021.

Oliver Jones, a senior markets economist at Capital Economics, noted U.S. earnings were projected to be roughly 50% higher in 2023 than they were in the year immediately prior to the pandemic, significantly more than was anticipated in most other major economies.

"With so much optimism baked in, it seems likely to us that the tailwind of rising earnings forecasts, which provided so much support to the stock market over the past year, will fade," he cautioned.

The week is also packed with U.S. data that should underline the economy's outperformance. Second-quarter gross domestic product is forecast to show annualised growth of 8.6%, while the Fed's favoured measure of core inflation is seen rising an annual 3.7% in June.

The Federal Reserve meets on Tuesday and Wednesday and, while no change in policy is expected, Chair Jerome Powell will likely be pressed to clarify what "substantial further progress" on employment would look like.

"The main message from Fed Chair Powell's post-meeting press conference should be consistent with his testimony before Congress in mid-July when he signalled no rush for tapering," said NatWest Markets economist Kevin Cummins.

"However, he will clearly remind market participants that the taper countdown has officially begun."

So far, the bond market has been remarkably untroubled by the prospect of eventual tapering with yields on U.S. 10-year notes US10YT=TWEB having fallen for four weeks in a row to stand at 1.26%.

The drop has done little to undermine the dollar, in part because European yields have fallen even further amid expectations of continued massive bond buying by the European Central Bank.

The single currency has been trending lower since June and touched a four-month trough of $1.1750 last week. It was last at $1.1779 EUR= and looked at risk of testing its 2021 low of $1.1702.

The dollar has also been edging up on the yen to reach 110.40 JPY=, but remains short of its recent peak at 111.62. The fall in the euro has lifted the dollar index =USD to 92.870, a long way from its May trough of 89.533.

The rise in the dollar has offset the drop in bond yields to leave gold range-bound around $1,800 an ounce XAU=.

Oil prices have generally fared better amid wagers that demand will remain strong as the global economy gradually opens and supply stays tight. O/R

The U.S. and European oil giants are expected to announce higher profits, cash and dividend payments this week.

Brent LCOc1 was trading down 73 cents at $73.37 a barrel, while U.S. crude CLc1 fell 76 cents to $71.31.

Editing by Sam Holmes

Our Standards: The Thomson Reuters Trust Principles.

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