Asia shares plunged on Thursday as oil jumped by $5 a barrel overnight in New York and worries about inflation deepened. A lower-than-expected figure for Chinese inflation in May failed to lighten the gloom and Shanghai dropped for the seventh day in a row. Indian shares fell as investors reacted to the central bank’s unexpected decision to raise interest rates on Wednesday.

Several benchmarks dropped below psychologically significant numbers the Nikkei below 14,000, the Shanghai composite below 3,000 and the Hang Seng dipped below 23,000.

The MSCI Asia Pacific Index had lost 2.8 per cent to 140.33 by late afternoon in Tokyo, bringing its losses on the week to 6.7 per cent.

Oil held on to most of its overnight gains. Nymex light sweet crude was trading at $135.41 a barrel for July delivery by mid afternoon in Singapore, compared to a peak of $136.38 in New York. Gold was 1.04 per cent lower at $871.18 per troy ounce for immediate delivery.

Japanese shares fell despite a weaker yen, which usually boosts exporters. The currency lost 0.29 per cent against a resurgent dollar to trade at Y107.29 per dollar. The Nikkei 225 average closed 2.1 per cent lower at 13,888.60 – its first close below 14,000 since late May – and the broader Topix index ended 1.9 per cent lower at 1,363.14.

Steel makers tumbled on expectations of lower demand. JFE Holdings plunged 6.7 per cent to Y5,570 and Tokyo Steel lost 7.0 per cent to Y1,253.

Shipping companies fell as the Baltic Dry Index, a measure of the price of transporting bulk goods by sea, dropped sharply in London on Wednesday on fears of lower demand as the price of oil surges.

Kawasaki Kisen Kaisha sank 5.6 per cent to Y1,035, Mitsui OSK dropped 4.8 per cent to Y1,440 and Nippon Yusen KK fell by 4.6 per cent to Y980.

Fast Retailing, the owner of Uniqlo clothes shops, 4.0 per cent to Y9,990 after Merrill Lynch downgraded the stock to “underperform”.

In Australia, the S&P/ASX 200 lost 2.5 per cent to end at 5,329.20, its lowest close since March 25, after the number of people with jobs unexpectedly fell in May for the first time in 19 months.

Babcock & Brown, the country’s second-biggest securities house lost more than a quarter in value as the company said it thought unnamed hedge funds were shorting the company to trigger a renegotiation of its debt agreements.

Babcock & Brown plunged 27.5 per cent to A$6.90. Its related companies dropped to 52-week lows. Babcock & Brown Power slumped by 31.0 per cent to 90 Australian cents and Babcock & Brown Infrastructure fell by 13.6 per cent to 86 Australian cents.

Babcock’s main rival, the investment bank Macquarie, dropped 5.6 per cent to A$50.69.

Fears of falling demand for raw materials sent BHP Billiton, the world’s biggest miner, down by 3.8 per cent to A$41.80. Other resource companies also suffered. Newcrest Mining dropped 5.8 per cent to A$26.98 and Rio Tinto, BHP’s longtime takeover target, fell by 1.7 per cent to A$129.88.

Shares on the mainland of China sank to their lowest levels for 15 months. May inflation, at 7.7 per cent, was lower than many economists had expected, and was an improvement on April’s level of 8.5 per cent. But the good news failed to stop the market’s slide.

The Shanghai composite index dropped as much as 4.1 per cent but a late rally narrowed the losses to 2.2 per cent lower and the benchmark ended at 2,957.53, its lowest close since 16 March 2007. The index has lost 12.2 per cent in the past week and is down by 51.7 per cent since its peak in October last year.

PetroChina, the country’s biggest company, fell by 3.3 per cent to Rmb15.37 and its rival oil company Sinopec lost 3.4 per cent to Rmb11.52.

China’s slump dragged down Hong Kong as well.

The Hang Seng index closed 1.3 per cent lower at 23,023.86 and the main sub-index of mainland companies listed in the territory was 1.4 per cent lower at 12,522.89

The list of worst performing stocks was dominated by big mainland firms. China Mobile fell by 1.4 per cent to HK$107.40, China Life Insurance lost 2.4 per cent to HK$28.40 and China Construction Bank was down 0.5 per cent to HK$6.53.

HSBC fell by 1.8 per cent to HK$126.00. HSBC advised investors to sell all their shares in Asian emerging markets and hold cash instead, as inflation threatened corporate profits.

HSBC was the worst performing local stock. It fell 1.9 per cent to HK$125.90.

The debut of A8 Digital Music, a provider of mobile phone ringtones and other music, created one bright spot. The shares closed 35.3 per cent above their offer price, near to the day’s highs, at HK$2.58.

Little Sheep, a mainland chain of restaurants, did not do so well. It dropped as much as 9.4 per cent below its flotation price in early trading, and closed exactly at its offer price of HK$3.18.

Shares in India were dragged lower by the Reserve Bank of India’s decision on Wednesday to raise interest rates to their highest level in five years. The Sensex was 0.8 per cent lower by mid-afternoon in Mumbai at 15,064.48

The property developer DLF dropped as much as 6.9 per cent but was more recently trading 4.4 per cent lower at Rs489.60. Housing Development Finance Corporation, a big mortgage lender fell by 1.6 per cent to Rs2,150.00. ICICI Bank lost 0.9 per cent to Rs734.45.

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