Australian shares fell 0.8 percent to their lowest close in four months on Monday as weak metal prices dragged down miners, while disappointing local and Chinese data soured investor sentiment. Blue-chip miners finished the session weaker. BHP Billiton Ltd dropped 2.3 percent while Rio Tinto Ltd fell 2.5 percent. Iluka Resources Ltd lost 1.1 percent.
China's factory activity shrank for the first time in seven months in May as both domestic and external demand softened, while growth in the services sector cooled, pointing to slowing momentum in the world's second-largest economy. "The HSBC Chinese PMI is removing some of the optimism that we saw in the morning," said Ric Spooner, market strategist at CMC Markets.
"It's showing a picture that companies in China are finding things reasonably difficult. That's just got people a little bit more cautious in their outlook on the Chinese economy." The S&P/ASX 200 index shed 38.3 points to finish at 4,888.3, the lowest close since early February. The benchmark slipped 0.1 percent on Friday. A total of 625.1 million shares had traded hands in a subdued session.
A late afternoon sell-off on Japan's Nikkei index to a near six-week low on Monday also hurt sentiment. The local benchmark lost more ground than the rest of the region, MSCI's broadest index of Asia-Pacific shares outside Japan slipped 0.3 percent. Australian job advertisements in newspapers and on the Internet fell for a third straight month in May, a potentially worrying omen for unemployment that will maintain pressure for another cut in interest rates.
Elsewhere, defensives were mostly weaker. Flagship telecommunications giant Telstra Ltd plumbed 1.7 percent while biotechnology firm Cochlear Ltd dived 18.1 percent to 1-1/2-year lows of A$52.88 after warning its 2013 full-year net profit would fall as much as 18 percent. QBE Insurance Ltd tumbled 2.2 percent.
Banks posted strong gains, recovering slightly after a heavy sell-off in May. Westpac Banking Corp climbed 2 percent while National Australia Bank tacked on 1 percent. Australia's fourth-largest bank, Australia and New Zealand Banking Group, jumped 1.1 percent. "At the margin the business indicator figures in China and retail sales were pretty good but maybe just below expectations," Spooner noted.
"(These) are just increasing at the margin the outlook for a reduction in rates, not tomorrow, but for down the track which would be supportive for banks." Australia's central bank is considered almost certain to keep its cash rate steady on Tuesday with the market pricing in a 14 percent chance of a cut. US stocks sold off in late trading to close sharply lower on Friday, with the S&P 500 posting consecutive weekly losses for the first time since November, as investors retreated after a seven-month run of gains. New Zealand's benchmark NZX 50 index climbed 0.9 percent or 40.8 points to finish at 4,511.4.
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