SINGAPORE/SYDNEY Asian equities edged lower on Monday, hurt by worries that the U.S. Federal Reserve could start scaling back its massive monetary stimulus in September, and signs of an economic slowdown in China.
European stocks were seen likely to fall on Monday. Financial spreadbetters expect Germany's DAX to open down 0.44 percent, and France's CAC 40 to open down 0.37 percent.
MSCI's broadest index of Asia-Pacific shares outside Japan fell 0.3 percent, having last week posted a 2.8 percent rally, its biggest weekly gain since September 2012.
The index, however, had ended the first half of the year down 7.3 percent, as investors began to fret that the U.S. central bank might start tapering its massive bond-buying later this year and slow down flows into Asian assets.
"I don't think this corrective mode will end immediately," said Satoshi Okagawa, senior global markets analyst for Sumitomo Mitsui Banking Corporation in Singapore.
Besides the growing speculation about a possible scaling back of the Fed's quantitative easing, worries about the Chinese economy's outlook may weigh on Asian equities in the near-term, Okagawa said.
China's factory activity reached its lowest in nine months in June as new orders fell despite price cuts by producers, a private survey showed on Monday, reinforcing signs of an economic slowdown in the second quarter.
The HSBC/Markit Purchasing Managers' Index (PMI) for June retreated to 48.2, the lowest level since September 2012 and down from May's final reading of 49.2.
A separate PMI survey released by China's government statistics office earlier on Monday slipped to 50.1 in June from 50.8 in May, but came in above the median market forecast of 50.0.
Tokyo's Nikkei share average rose 1.1 percent in choppy trade. Some long-only investors picked up banking shares, while currency-sensitive exporters were supported by a weaker yen.
Optimism that Prime Minister Shinzo Abe's aggressive stimulus push will lift the economy has helped light a fire under the Nikkei, which is up about 33 percent so far this year.
Data on Monday suggested Abe's plans are on track with a survey showing the mood of Japanese manufacturers turning positive for the first time in nearly two years.
Monday's market moves followed a subdued finish on Wall Street after Fed Governor Jeremy Stein suggested that September could be an opportune time for the central bank to consider scaling back its massive asset-purchase programme.
Stein's remarks, echoed by President of the Richmond Fed, Jeffrey Lacker, undid some of the calm that spread through markets last week after several other officials sought to play down market fears of the Fed's plan to taper stimulus.
Critical for markets this week is the U.S. jobs data due on Friday, given it is a key measure for the Fed to consider before deciding to start withdrawing stimulus.
In currency markets, the dollar held near a one-month high against a basket of major currencies. The dollar index stood at 83.111, not far from Friday's high of 83.344, its highest level since early June.
Against the yen, the dollar hit a one-month high of 99.55 yen, and was last up 0.2 percent on the day at 99.39 yen.
The Australian dollar touched a near three-year low against the U.S. dollar earlier on Monday, but later regained a bit of ground, getting some support after China's official PMI was less dire than expected.
The Australian dollar rose 0.6 percent to $0.9193. Earlier, it fell to $0.9110, its lowest level since September 2010.
Benchmark 10-year U.S. Treasuries fell about 6/32 in price to yield 2.512 percent. The 10-year yield rose 2 basis points on the day but remained below last Monday's high of 2.667 percent, which was the highest since August 2011.
Spot gold rose 1.1 percent to $1,246.31 per ounce, up from a near three-year trough of $1.180.71 set on Friday. Worries about the end of the Fed's stimulus had contributed to the panic selling of the precious metal.
U.S. crude held steady at $96.53 a barrel.
(Additional reporting by Dominic Lau in Tokyo)