Asia: Stocks fall as PBoC cuts yuan's reference rate and investors eye Fed

Asia stocks fell on Tuesday as China’s central bank cut the yuan’s reference rate and as investors awaited the Federal Reserve’s interest rate decision.

Hong Kong’s Hang Seng closed down 0.17% while the Shanghai composite fell 0.30% and Japan’s Nikkei 225 dropped 1.68%.

The Chinese yuan declined 0.03% to close at 6.4610 per dollar in Shanghai, taking its eight-day decline to 1%, according to CFETS prices, as the People’s Bank of China cut the yuan’s reference rate for the seventh consecutive day.

The move comes amid speculation the central bank is guiding the currency lower to boost the slowing economy.

The PBoC on Friday tried to soothe markets by saying that the yuan’s performance shouldn’t be measured solely against the dollar.

In Japan, the yen rose 0.04% against the dollar at the close, dragging exporters lower including Toyota Motor Corp.

Meanwhile, oil prices recovered with Brent crude up 1.1% to $38.35 per barrel and West Texas Intermediate up 0.4% to $36.49 per barrel at 1005 GMT.

However, Moody's cut its oil price estimates due to the threat of prolonged oversupply, hacking its 2016 Brent assumption to $43 from $53, with West Texas Intermediate lowered to $40 from $48.

In the US, the Fed is expected to raise interest rates by 25 basis points on Wednesday following its two-day policy meeting.

Michael Hewson, senior market analyst at CMC Markets, noted that the Fed Funds Implied Probability indicator suggests that there is a 78% possibility of a rate increase and that there have been “clear signals” in recent weeks that US officials are preparing for such a move.

“It has also been suggested that the recent surprise decision by the European Central Bank to be more cautious about pushing extra stimulus into the financial system may have been rooted in concerns that too aggressive a move might well have caused the Fed to delay a move on rates,” he said.

“Policymakers will also have to weigh up any possible long term effects the recent decision by Chinese authorities to launch a new Yuan trade weighted basket could have on further deflationary forces in the global economy.”

In company news, Japanese banks provided a drag on the Topix including Mitsubishi UFJ Financial Group, Mizuho Financial Group and Sumitomo Mitsui Financial Group.

The leasing unit of Sumitomo Mitsui Financial Group has agreed to buy General Electric's Japan leasing business for 575bn yen (£3.2bn).

China National Chemical Corp’s chairman Ren Jianxin reportedly met with Syngenta AG in Europe last week as the Chinese chemical firm looks to move ahead with a takeover plan following Dow Chemical and DuPont’s agreed merger.

Seibu Holdings jumped after Barclays raised its rating on the department-store operator.

Fosun International continued to decline despite Monday's reappearance of its chairman Guo Guangchang, who assisted a government investigation over the weekend. Fosun's rating has been placed under review by Goldman Sachs, "pending further information and clarity".

Tech group ChiNext rallied ahead of the second World Internet Conference on Wednesday in Wuzhen, in eastern Zhejiang province.