Asian stocks declined as Chinese manufacturing activity fell to a seven-month low in February, fuelling concerns of a slowdown in the world's second largest economy.

The HSBC/Markit China manufacturing purchasing managers' index (PMI) fell to 48.3 in February, from the prior month's reading of 49.5. Readings below 50 indicate a contraction in the sector.

New orders experienced a sharp drop from 50.1 to 48.1. The employment component fell to 46.9 from 47.3.

HSBC Chief China Economist Hongbin Qu said the building-up of disinflationary pressures implies that the underlying momentum for manufacturing growth could be weakening.

"We believe Beijing policy makers should and can fine-tune policy to keep growth at a steady pace in the coming year," he said.

Danske Bank added: "In our view, part of the weakness in February was due to the timing of the Chinese New Year public holiday. As in 2013, the Chinese New Year Public holiday mainly fell in February and this has, in our view, weighed on the HSBC manufacturing PMI in February."

Hong Kong's Hang Seng index finished down 1.19% and the Shanghai Composite decreased 0.18%.

In another hit to stocks, Japan suffered a record trade deficit in January as growth in exports supported by a weak yen was offset by a surge in import costs.

The trade balance came to a deficit of 2.79trn yen in January, a record 19th straight month of shortfalls. Imports rose to a 25% record amount while exports advanced 9.5%.

The report raised fresh doubts about Prime Minister Shinzo Abe's strategy to boost the economy with a mix of fiscal and monetary stimulus.

Japan's Nikkei 225 index plunged 2.15% following the data release.

Japanese exporters, including Honda Motor and Toyota Motor Corp., declined as the yen strengthened against all its 16 major counterparts.

China Petroleum & Chemical Corp. advanced in Hong Kong after Asia's biggest oil refiner said it's seeking private investors.

Sinopec rallied as the Beijing-based operator of fuel stations said it plans to sell as much as 30% of its oil retail unit to private investors, according to a statement yesterday.

RD

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