Malaysian stocks and bonds fell on Thursday, hit by concerns about the bird flu outbreak sweeping Asia and a change in stance by the US Federal Reserve indicating interest rates may rise sooner than expected.
Down more than one percent in morning trade, the 100-stock Composite Index narrowed its loss to close 0.33 percent lower at 817.11 points, helped by a rebound in shares of national power utility Tenaga.
But the bond market suffered a bigger hit, with short-dated papers losing between eight to 22 basis points, as investors unwound positions amassed in recent days.
Foreign investors had snapped up large amounts of Malaysian short-dated bonds after cashing out from regional equity markets because of the bird flu scare.
"All of a sudden, the negatives are piling up and investors can't ignore them," said Ngu Chie Kieng, research head at TA Securities.
Top lender Maybank and the country's largest phone firm Telekom pushed the main share index lower, together contributing more than a third of its loss.
Tenaga shares halted a two-day slide to end up 0.53 percent at 9.45 ringgit, boosted by optimism a US interest rate hike could strengthen the dollar and reduce the hit the firm has suffered on its yen loans. Tenaga reported an unexpected quarterly loss on Tuesday due mainly to huge forex losses on its Japanese borrowings.
In Malaysia's bond market, Southeast Asia's largest, the three-year government bond jumped seven basis points to 3.23 by 0810 GMT, while one-year sovereign bill shot up 22 basis points to 2.55 percent.
The five-year government bond retraced early losses to trade flat at 3.90 percent.
The US central bank kept interest rates at 45-year lows on Wednesday, but dropped wording in its policy statement that previously said rates would stay low for a "considerable period".