HONG KONG, Jan 26, 2024 (BSS/AFP) - The rally in Asian markets petered out Friday, with profit-takers paring three-day surges in Hong Kong and Shanghai as traders await more guidance on China's plans to support the country's battered economy.

The tepid display came despite more record finishes for the Dow and S&P 500 in New York fuelled by forecast-beating US growth data and news that a key inflation gauge remained in line with the Federal Reserve's target.

Hong Kong soared more than eight percent and Shanghai more than five percent from Tuesday to Thursday on news that Alibaba's co-founders had bought huge stakes in the firm and pledges by Beijing to help shore up markets and introduce economic support measures.

A decision by the People's Bank of China to cut the amount of cash banks must keep in reserve, to boost lending, provided a further lift to confidence.

However, analysts warned the government needed to provide much more help in the right areas of the economy -- particularly the colossal property sector -- to revive confidence among investors.

And while upcoming meetings of the Communist Party are expected to see officials unveil more measures, the lack of any fresh announcements this week has taken the wind out of the rally.

In morning trade, Hong Kong and Shanghai were down along with Tokyo, Wellington, Taipei, Manila and Jakarta. There were gains in Singapore and Seoul.

The Fed's preferred gauge of inflation -- the personal consumption expenditures (PCE) index -- is due later Friday, which traders hope will provide an idea about the bank's plans for interest rates this year.

That comes after figures showing that the core PCE held steady at policymakers' two percent target in October-December, marking the second successive quarter at that level.

Also Thursday, figures showed the US economy expanded a much-better-than-expected 3.3 percent in the last three months of the year, thanks to a strong jobs market and consumer spending.

The readings stoked optimism that the economy will not tip into recession, with the Fed on course for a soft landing.

"There are no recession concerns here, and to make matters even better, we don't see any accompanying blowout growth in prices that are used in the GDP calculation," Charles Hepworth of GAM Investments said.
"Stronger growth without inflation is what everyone wants."

And SPI Asset Management's Stephen Innes added: "The Fed is nearly running an inflation victory lap, marked by two consecutive quarterly core inflation readings of 2%. It is an unambiguous positive inflection point for stock investors as it opens the door for first-half rate cuts."

He said it was "challenging to interpret the GDP release in any other way than a Goldilocks scenario", referring to a situation where the figures are neither too strong nor weak.

Focus is now turning to the Fed's first policy meeting of the year, where it is expected to hold rates, though its statement and comments from boss Jerome Powell will be pored over for an idea about decision-makers' thinking.

Bloomberg said investors have fully priced in a cut in May -- previous hopes for a March move have fallen away in recent weeks owing to strong data -- while a total of 140 basis points in reductions is expected by the end of December.

- Key figures around 0230 GMT -

Tokyo - Nikkei 225: DOWN 1.1 percent at 35,835.07 (break)

Hong Kong - Hang Seng Index: DOWN 0.3 percent at 16,159.06

Shanghai - Composite: DOWN 0.2 percent at 2,900.06

Dollar/yen: UP at 147.62 yen from 147.51 yen on Thursday

Euro/dollar: DOWN at $1.0845 from $1.0885

Euro/pound: DOWN at 85.32 pence from 85.53 pence

Pound/dollar: UP at $1.2712 from $1.2726

West Texas Intermediate: DOWN 0.6 percent at $76.89 per barrel

Brent North Sea Crude: DOWN 0.5 percent at $82.06 per barrel

New York - Dow: UP 0.6 percent at 38,049.13 (close)

London - FTSE 100: FLAT at 7,529.73 (close)