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Asian shares fell on Monday, dragged by China, after central banks last week reinforced the message that interest rates would stay higher for longer, while investors braced for inflation data from the U.S. and Europe.

Markets will be looking for clues on whether China's economy is regaining traction, with a week-long national holiday set to begin on Friday that will be a key test for consumer spending.

The yen was jittery near the closely watched 150 per dollar level amid intervention fears, after the Bank of Japan made no change to its dovish monetary policy. Governor Kazuo Ueda is scheduled to give a speech and take questions from 14:30 local time.

MSCI's broadest index of Asia-Pacific shares outside Japan dropped 0.6%, edging closer to a ten-month low plumbed just last week. Japan's Nikkei, on the other hand, rose 0.7%.

Chinese bluechips eased 0.5% after a 1.8% rise on Friday, while Hong Kong's Hang Seng index slumped 1.1%, giving back about half of Friday's gains.

S&P on Monday lowered its forecast for China's economic growth in 2023 to 4.8% from 5.2%, saying the fiscal and monetary easing had remained limited.

"Policymakers' emphasis on containing leverage and financial risks has increased the bar for macro stimulus," said Louis Kuijs, Asia-Pacific chief economist.

The big test in the week ahead would be the industrial profit figures on Wednesday from China, as well as manufacturing and services PMIs on Saturday. [.SS]

BOND ROUT

Bond investors were still smarting from the U.S. Federal Reserve's more hawkish rate projections, which caught markets by surprise. Coupled with the recent economic resilience in the U.S. economy, markets ramped up bets that interest rates would stay higher for longer and drastically scaled back rate cut expectations.

"What's driven the move this year is the acceptance that inflation shock isn't transitory, but is going to require restrictive monetary policy for much longer than we first thought," said Andrew Lilley, chief rates strategist at Barrenjoey.

"For bonds to rally globally, we're going to need a coordinated rate cutting cycle, particularly from the Fed. Personally I don't see the Fed cutting in 2024, so I don't think that 2024 will be a particularly good year for bonds either."

Ten-year Treasury yields inched up 2 basis points to 4.4580% on Monday, after retreating from a 16-year high of 4.508% on Friday.

Two year yields were little changed at 5.1162%, having fallen from a 17-year top of 5.2020% hit last week.

Much will depend on U.S. data. In a sign of slowing growth, U.S. business activity was basically at a stand still in September, with the vast services sector essentially idling at the slowest pace since February.

Bruce Kasman, chief economist at JPMorgan, expects good news from U.S. and European inflation results this week, which should show low core inflation readings.

The Fed's favoured inflation gauge, the core Personal Consumption Expenditures Price Index, is expected to show on Thursday a 0.2% monthly increase for August, unchanged from July. Other U.S. data in the week includes final Q2 GDP, and weekly jobless claims.

Euro zone inflation figures for September are due on Friday.

In the currency markets, the U.S. dollar held near its six-month top at 105.60 against a basket of major currencies.

The yen last traded at 148.41 per dollar, after hitting a fresh 10-month low of 148.49 earlier in the day.

Oil prices were marginally higher, not far from their 10-month highs. Brent crude futures rose 0.2% to $93.39 per barrel. U.S. West Texas Intermediate crude futures were also up 0.1% at $90.16.