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SINGAPORE (Dow Jones)--Asian stock markets were lower Tuesday with the sentiment dented by concerns that the Chinese economy may be slowing. Australian banks were leading the Sydney market lower.

Holidays in the U.K. and the U.S. on Monday also kept markets guessing about this week's direction for global equities but some investors were cashing in after a newspaper backed by China's National Bureau of Statistics said the country's official purchasing managers index was at 53.9 in May, falling from 55.7 in April.

"Risk appetite has improved somewhat over the past few days...but still remains at an elevated level whilst money market tensions remain relatively high too," said Credit Agricole Corporate & Investment Bank in a note. "Risk aversion is likely to creep back over coming days."

Japan's Nikkei Stock Average was down 0.9%, Australia's S&P/ASX 200 was down 0.9%, South Korea's Kospi Composite was off 0.5% and New Zealand's NZX-50 were flat.

Dow Jones Industrial Average futures were down 60 points in screen trade.

South Korean shares were modestly lower in subdued trade. The market was expected to stay "directionless" given the lack of cues due to Monday's holiday in the U.S., said Jung Seung-jae at Mirae Asset Securities.

Posco was down 1.5% and Hyundai Steel fell 0.6%. Hyundai Motor was off 1.8% on profit-taking after recent gains. GS Engineering & Construction rose 2.8% on news a consortium led by French utility GDF Suez SA, including Siemens AG and GS Engineering, had won a $1.7 billion contract to build two new power stations in Oman.

Japanese shares were led lower by losses in shippers and commodities-related stocks.

Mitsui O.S.K. Lines fell 1.1%, Inpex lost 0.9% and Sumitomo Metal Mining lost 1.0%.

The market shouldn't be affected much by concerns over whether Prime Minister Yukio Hatoyama would step down, said Yumi Nishimura, deputy general manager at Daiwa Securities Capital Markets.

"Support for Hatoyama has already declined, and even if he does step down, (the ruling Democratic Party of Japan's) policies won't change much," she said.

Hatoyama on Tuesday reiterated his intent to stay in office, with Kyodo News quoting him as saying: "I will keep on dealing with the country's problems" in cooperation with the ruling party's leaders.

Hatoyama's remarks came amid growing calls for his resignation from DPJ lawmakers due to his clumsy handling of the relocation of a U.S. military base in Okinawa.

Automakers were also weak, with Toyota down 1.2% and Honda down 0.9%.

Honda said Monday that its three vehicle assembly joint ventures in China will suspend operations Tuesday and Wednesday due to a shortage of parts.

Its wholly-owned unit, Honda Auto Parts Manufacturing Co., Monday said it had resumed production of manual transmissions as some of the workers at its Foshan factory agreed on a proposed wage hike.

Weakness in banking and resources stocks weighed on the Australian market.

"It's been very quiet with U.S. and U.K. markets closed overnight," said Martin Lakos, division director at Macquarie Private Wealth.

Major banks were down, with ANZ off 1.2%, Westpac down 2.2% and National Australia Bank off 1.7%. In the resources space, BHP Billiton was down 0.3% and Rio Tinto fell 0.4%.

Engineering group Downer EDI tumbled 16% after disclosing impairments on its Waratah train project of A$190 million, as well as a general impairment of A$70 million.

The focus was on the Reserve Bank of Australia's rate-setting decision at 0430 GMT, with economists widely expecting the cash rate to be held steady at 4.50%.

New Zealand shares were modestly higher in thin trading.

Financial services concern Pyne Gould Corp. rose 4.6% after saying it and two other financial services firms, Canterbury Building Society and Southern Cross Building Society, were evaluating a merger.

The proposed merger would create a New Zealand-owned banking group with a starting asset base of approximately NZ$2.2 billion. "It is putting together businesses that appear to be healthy. Obviously there is a lot more water to flow under the bridge but on the face of it, it looks pretty positive," said Forsyth Barr Institutional Broker David Price.

In foreign exchange markets, the euro was lower against the U.S. dollar and the yen in thin trading, partly weighed by lower Asian stocks. Traders said comments by European Central Bank board member Christian Noyer also weighed on the euro and other currencies such as the Australian dollar.

Central banks have done well so far in battling recent financial crises but they must take steps to prevent excessive risk-taking from causing future emergencies, Noyer said in a speech at a Bank of Korea conference in Seoul.

Responses by central banks "have been broadly successful," Noyer said. "In the period to come, however, steering the economy may prove more challenging and new risks can weigh negatively on the recovery underway."

The single currency was fetching $1.2265 against the dollar, from $1.2301 late in Toronto Monday, and was at Y111.64 against the yen, from Y112.40. The dollar was buying Y91.17, compared with Y91.09.

Although the euro pushed higher on Monday, Brown Brothers Harriman said the single currency was still biased down.

"While the euro saw a brief respite, we believe that the negative news stream will continue and so the euro bear trend should remain intact," it said in a note to clients.

Lead Japanese government bond futures were up 0.04 at 140.45 points, lifted by the Nikkei's weakness. The 10-year cash JGB yield was down 0.5 basis point at 1.250%.

July Nymex crude oil futures were up 50 cents at $74.47 per barrel.

-Shri Navaratnam, Dow Jones Newswires; +65-6415-4140; shri.navaratnam@dowjones.com

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