Minutes from a Federal Reserve meeting in June, released on Wednesday, showed conditions may need to worsen before policymakers ease monetary policy further to stimulate the U.S. economy, while U.S. corporate profit warnings and weak results in Europe have fed expectations for a depressing earnings season.
European stocks were likely to decline, with financial spreadbetters calling the main indexes in London <.FTSE>, Paris <.FHCI> and Frankfurt <.GDAXI> to open down as much as 0.7 percent. U.S. stock futures were down 0.3 percent. <.EU> <.L> <.N>
The decision by South Korea's central bank to cut rates for the first time in more than three years follows a raft of rate cuts over the past week from Europe to Brazil and China aimed at ameliorating the impact of the euro zone's debt crisis.
'There are still worries in European markets and foreign markets but it seems BOK (Bank of Korea) decided it is necessary to join in the efforts with the recent movements by China and other countries,' said Kong Dong-rak, fixed-income analyst at Taurus Investment & Securities.
MSCI's broadest index of Asia-Pacific shares outside Japan <.MIAPJ0000PUS> slumped 1.6 percent to a new low for the month. Australian shares <.AXJO> extended their losses after the jobs data to fall 0.7 percent.
Hong Kong shares <.HSI> led the region's decline with a 1.8 percent fall, with investors wary about China's second-quarter gross domestic product report due on Friday which is likely to show the slowest growth in more than three years.
A senior economist at the cabinet's think-tank said on Thursday China's economy may have grown nearly 8 percent in the first half of 2012 from a year earlier, and will recover steadily in the second half as policy stimulus gains traction.
Japan's Nikkei average <.N225> fell 1.5 percent. <.T>
Australian employment fell by 27,000 in June against a flat outcome forecast, a surprisingly weak result that also sent the Australian dollar down half a cent and led investors to price in a greater chance of further cuts in interest rates.
'Any deterioration in the labor market... means an easing bias is still in,' said Michael Blythe, chief economist at Commonwealth Bank.
The Fed's minutes lifted the dollar index <.DXY>, measured against a basket of key currencies, to a two-year high of 83.61 and pushed the euro to a two-year low of $1.2212. In Asia time, the dollar index eased 0.1 percent while the euro steadied.
Brent crude held above $100 a barrel while U.S. crude erased earlier gains to fall 0.4 percent to $85.51.
BOJ TWEAKS TECHNICALS
The Bank of Japan kept interest rates steady on Thursday but tweaked its asset-buying program to ensure smooth buying of short-term securities.
Japan's 10-year government bond futures hit a nine-year high as the BOJ's decision spurred expectations the step would further push down the yield curve led by short-term maturities.
'The tweaks are mainly aimed at fulfilling the BOJ's asset buying scheme which was strengthened earlier this year and ensure that liquidity is fed to the system,' said Izuru Kato, chief economist at Totan Research in Tokyo.
'Also, the focus on shorter securities may suggest the BOJ's reluctance to boost demand for longer-dated bonds and push yields even lower, which in turn would hurt banks' income,' he said.
The BOJ has been struggling to get sufficient demand for its funding operations due to weak demand.
While Europe made a small step forward on Wednesday with Spain unveiling new austerity measures, it still skirted around a key issue of creating a structure to cap surging borrowing costs in struggling euro zone member states.
Investors were showing no sign of departing from safe assets yet, snapping up U.S. and German government bonds at or near record low yields.
Japanese data showed foreign investors bought a net 1.54 trillion yen in short-term bills in the week to July 7, nearly double the amount in the previous week. Foreigners have been net buyers of short-term Japanese government bills for a third week in a row.
Falling yields on sovereign debts may spur demand for credit products, as reflected in firmness in Asian credit markets, which defied declines elsewhere. The spread on the iTraxx Asia ex-Japan investment-grade index was 3 basis points tighter.
'With government bond yields falling globally, investor interest for credit investment is growing to chase higher returns,' said Mana Nakazora, chief credit analyst at BNP Paribas in Tokyo.
(Additional reporting by Christine Kim and Choonsik Yoo in Seoul and Wayne Cole in Sydney; Editing by Richard Borsuk)
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