By Ese Erheriene

Chinese equity markets tumbled shortly after trading began on Monday, dragged down by a plunge in small-cap stocks after an injection of liquidity by the nation's central bank spooked investors.

On Monday, the People's Bank of Bank pumped a net 140 billion yuan ($20.68 billion) to the interbank market, the biggest such injection since June 6, ahead of a key data release, sending investors rushing to reposition their portfolios.

"It's reverse psychology," said Hao Hong, managing director and head of research at BOCOM International. "If everything is fine, you don't have to inject liquidity. But if they're injecting liquidity, something must be wrong."The release of upbeat economic data helped moderate the declines, though. China's economy grew 6.9% in the second quarter from a year earlier, matching the increase in the first quarter. That beat economists' expectations of a 6.8% expansion and Beijing's full-year growth target of 6.5%.

The Shanghai Composite fell as much as 2.6% and the Shenzhen Composite slumped 4.5% at one point; they were last down 1.4% and 2.7% respectively.

Elsewhere in the region, equity markets were broadly higher at the start of the week, tracking gains in U.S. indexes as investors distanced themselves from concerns around imminent rate increases.

The softer-than-expected U.S. economic data on Friday could compel the Federal Reserve to keep interest rates low for longer than expected, analysts say. This helped drive the Dow Jones Industrial Average and the S&P 500 to close at records last week.

South Korea's Kospi index was last up 0.3% inmorning Asian trade, boosted by a 0.7% gain for index heavyweight Samsung and on course for another record close. Singapore's Straits Times Index was up 0.2%, while Hong Kong's Hang Seng Index added 0.4%. Japanese markets were closed for a public holiday.

"What's really driving [Asian markets] is this positive lead coming through from U.S. markets on Friday," said Jingyi Pan, a market strategist at IG Group. The economic data out "really induced the market to pare back rate hike expectations."

The likelihood of a rate increase at each meeting before December is less than 15%, according to CME Group data.

Bucking the regional trend, Australia's S&P/ASX 200 slipped 0.1% as its heavily-weighted financial sector took a knock. The country's big four banks-- Commonwealth Bank of Australia, Westpac Banking, National Australia Bank and Australia and New Zealand Banking, which contribute about one-third of the benchmark index's weighting--were down around 0.3%.

The declines in Australian banking stocks come despite weakness in the Australian dollar against the U.S. unit, as the currency pair pulled back after rallying Friday to a near two-year high of 0.7836.

The Australian dollar will likely to see more gains this week, supported by encouraging Chinese economic activity and favorable Australian employment conditions, said the Commonwealth Bank of Australia.

Elsewhere, the Japanese yen was flat against the greenback and the Korean won was up 0.2% against the U.S. currency.

In the commodities sphere, oil prices were modestly higher in Asia following further gains on Friday in the U.S., with the shutdown of a Nigerian oil pipeline helping give the market a lift. Futures rose some 5% last week, helped by Friday's subdued growth in the U.S. oil-rig count.

Prices rose every day of last week as investors of late have taken the half-full view on the crude market, noted ANZ Research, amid some encouraging data points.

Nymex crude for August delivery was recently up 7 U.S. cents at $46.61 a barrel in Asia, while September Brent crude gained 8 cents at $48.99 a barrel.

Olivia Guo

,

Ben Collins

and James Glynn contributed to this article.

Write to Ese Erheriene at ese.erheriene@wsj.com

(END) Dow Jones Newswires

July 16, 2017 22:54 ET (02:54 GMT)

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