SINGAPORE, RAW – Asian stocks have fallen to a six-week low as an extended sell-off in tech shares in Hong Kong and rising virus cases added to a broad risk-averse mood, pressuring oil prices and lending support to bonds and the US dollar.

A surprise dovish turn from Chinese policymakers also sparked a rally in sovereign Chinese debt and sent 10-year yields to a 10-month low.

MSCI’s broadest index of Asia-Pacific shares outside Japan fell one per cent on Thursday to its lowest since late May, shrugging off a positive tilt from Wall Street.

“Market sentiment is turning somewhat shaky,” said OCBC analyst Terence Wu. Japan’s Nikkei fell 0.6 per cent and S&P 500 futures wobbled 0.3 per cent lower.

The Hang Seng index led losses with a 1.9 per cent drop, its eighth consecutive session in the red, with more falls in internet giants Tencent, Meituan and Alibaba as the sector reels from sweeping Chinese regulatory scrutiny.

The longer end of the US yield curve, meanwhile, is in its eighth straight day of a sharp rally that has pushed the 10-year yield nearly 24 basis points lower in just under two weeks. The 10-year yield was last at 1.3113 per cent.

The rally lacks an obvious catalyst but seems to be driven by large position shifts as investors unwind bets on yields rising with growth, resulting in the curve instead flattening on the assumption that an inflation pulse generated by the recovery will be short-lived.

On the virus situation, the spread of the Delta variant continues to drive global case counts higher, with South Korea reporting its highest ever one-day number of infections on Thursday after Indonesia reported record deaths on Wednesday.

On the policy front, though, an end to stimulus looms and minutes from the June Federal Reserve meeting confirmed the central bank has a wary eye on inflation and is prepared to act if necessary – even if it still thinks that is a long way off.

Stock markets, however, were focused on the likelihood of tapering being some way off and the S&P 500 and Nasdaq notched fresh record closing highs.

China looks to be leaning the other way, and late on Wednesday cabinet said policymakers will use timely cuts in the bank reserve requirement ratio to support the real economy, especially small firms.

The dollar rose broadly in early Asia trade, reeling back recent gains in the New Zealand dollar to peg it back at $0.6986, while the euro sat near Wednesday’s three-month low at $1.1786.

The safe-haven yen was also firm at 110.56 per dollar.

Oil was weak for a third day amid anxiety about a rise in supply after talks among producers collapsed this week. Brent futures were last down 0.5 per cent at $73.09 a barrel and US crude fell 0.6 per cent.