SYDNEY Asian shares and the dollar both lost more ground on Friday as investors began the new quarter in a cautious mood, with glimmers of life in China's economy offset by a darkening mood in Japan.
Activity in China's vast manufacturing sector expanded in March for the first time in nine months as the official Purchasing Managers' Index (PMI) surprised at 50.2.
A private version of the PMI also beat forecasts by rising to its highest in 13 months.
Yet markets seemed underwhelmed and shares in Shanghai drifted 0.6 percent lower.
Not helping was Standard & Poor's decision to cut China's credit outlook to negative, saying Beijing's reform agenda was likely to proceed more slowly than expected.
A gloomy survey of Japanese manufacturers added to selling pressure at the start of a new financial year and dragged the Nikkei down 2.8 percent to a five-week low.
The red ink spread across the region as MSCI's broadest index of Asia-Pacific shares outside Japan skidded 1.1 percent.
More factory surveys are still to come from Europe and the United States and the U.S. payrolls report remains a hurdle as any sign of strength in wages might revive the risk of higher U.S. interest rates.
DOLLAR DOWN WITH YIELDS
On Wall Street, the Dow had ended Thursday 0.18 percent lower, while the S&P 500 lost 0.2 percent and the Nasdaq edged up 0.01 percent.
It was a muted end to a wild quarter that saw stocks plunge on global growth fears only to rebound as major central banks took ever more aggressive stimulus steps.
The latest twist was this week's surprisingly dovish turn on policy from Federal Reserve Chair Janet Yellen which saw investors further scale back expectations for how far and fast interest rates would rise in coming years.
Fed fund futures currently have one quarter-point hike priced in by December, while yields on two-year Treasury paper were down at one-month lows.
Indeed, U.S. Treasuries enjoyed their best quarter in 4-1/2 years as yields on 10-year notes dropped a steep 50 basis points in the three months to March.
The dollar's reaction has been just as large but in a bearish direction, as the currency suffered its largest quarterly percentage loss in more than five years.
The dollar index, which measures it against a basket of major currencies, hit its lowest since mid-October and was last stuck at 94.663.
The euro was firm at $1.1377 after reaching $1.1411, the first visit above $1.1400 in 5-1/2 months. The dollar also eased to 112.10 yen, having been as high as 113.80 early in the week.
The weaker dollar has been something of a reprieve for oil, which boasted its best quarter since mid-2015 with a gain of 10 percent.
Worries about oversupply still remain, however, and U.S. crude was off 26 cents at $38.08 a barrel on Friday. Brent dropped 28 cents to $40.05.
Gold was steady at $1,231.50 an ounce, after notching up its biggest quarterly gain in nearly 30 years.
(Reporting by Wayne Cole; Editing by Kim Coghill and Eric Meijer)
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