HONG KONG, China — Asia-Pacific stocks fell in early trade on Thursday as the COVID-19 surge in China cast a shadow over markets across the region.
Investors had cheered the easing of China's strict zero-COVID controls -- which had hammered the world's second-largest economy -- but are now worried about the impact of the outbreak on global supply chains and inflation.
The United States, Japan and Italy have imposed restrictions on visitors from China, and a senior US official warned that the surge increases the potential for new Covid variants to emerge.
Hong Kong and Tokyo were both down more than 1% in early trade. Sydney, Singapore, Shanghai, Taipei and Seoul were also in the red.
Volumes were thin in the final trading week of the year, with investors chewing on the prospects of a recession in 2023, and how central banks -- especially the US Federal Reserve -- are going to handle the fight against rampaging inflation.
The Fed and others have repeatedly raised interest rates to put the brakes on soaring prices, but higher borrowing costs also slow down economic activity.
"The key trading themes will continue to dominate in early January, most notably how far central banks are willing to push interest rates in order to display their determination to get inflation back to target," OANDA's Craig Erlam said in a note on Wednesday.
"Many have already started easing off the brake and we're seeing plenty of signs of pressures easing, albeit perhaps not as much as policymakers would have liked by now."
Oil prices drop
The plunge in Asia-Pacific shares followed sharp falls on Wall Street on Wednesday, where the main indexes all closed in the red.
The Dow lost 1.1%, while the tech-rich Nasdaq slid 1.4%.
The US losses came on a low day for most markets as hopes for a so-called "Santa Claus rally" ebbed.
The "Santa Claus rally" is a seven-session stretch over Christmas and New Year that typically sees stocks drifting higher in light trade.
Analysts said low-volume, low-risk trade will continue until the year ticks over.
In oil markets, the two main crude contracts were both lower, with traders concerned about the possibility of China's Covid outbreak fuelling a global resurgence of the disease and depressing energy demand.
Meanwhile, Germany shrugged off Russia's ban on oil sales to countries and companies that comply with a price cap on its crude exports.
The price ceiling of $60 per barrel agreed by the European Union, G7 and Australia came into force this December in response to the Russian invasion of Ukraine.
It seeks to restrict Russia's revenue while making sure it keeps supplying the global market.
Key figures at around 0315 GMT
Tokyo - Nikkei 225: DOWN 1.3% at 25,998.76
Hong Kong - Hang Seng Index: DOWN 1.0% at 19,704.05
Shanghai - Composite: DOWN 0.2% at 3,081.08
Euro/dollar: UP at $1.0624 from $1.0618 at 2215 GMT on Tuesday
Pound/dollar: UP at $1.2039 from $1.2018
Euro/pound: DOWN at 88.26 pence from 88.30 pence
Dollar/yen: DOWN at 133.68 from 134.39 yen
West Texas Intermediate: DOWN 0.6% at $78.47 per barrel
Brent North Sea crude: DOWN 0.5% at $82.83 per barrel
New York - Dow: DOWN 1.1% at 32,875.71 (close)
London - FTSE 100: UP 0.3% at 7,497.19 (close)