Trading was similar in the mainland. The Shanghai Composite Index (SHA:000001) eked out a gin of +2.35 points or +0.08% at the close. Auto and construction materials underperformed on stimulus exit. Shares of SAIC Motor (SHA:600104), GM's Chinese partner and the largest Chinese auto maker fell -2.9%. The largest Chinese property developer, China Vanke (SHE:200002) fell -1.2%.

Most of the pressure comes from the latest economic data. Inflation accelerated to 2.7% vs. estimated 2.5%. But wages increase and food price increase may push the barometer to 5% by the end of the year, according to Credit Suisse. This implies that interest rates have to go higher, pressuring equity markets in the short run.

According to the latest round of economic data, industrial output increased 20.7% in January-February 2010 to a new five year record. Urban real estate investment increased 22.6% compared to last year while retail sales surged 17.9% the same time. While most economists agree that some of the gains are attributed to a relatively low comparison base due to the height of the global economic crisis a year ago, yet the numbers are still impressive by global standards. All signs point to a direction that China will exit stimulus rather sooner than later, raising the level of uncertainty in equity markets.

Chinese stocks listed on American soil have been less volatile lately, as evidenced by the significant drop in the number of overbought China ADRs. Earnings remain in focus with UTStartcom (NASDAQ:UTSI) and China Sunergy (NASDAQ:CSUN) reporting today.

Most Chinese indices have been trading in a narrow range looking for a direction. The significant advance in the 10-year Treasuries is a sign that confidence increases towards the U.S. economy. The number of foreclosures fell to the lowest level in year, suggesting the worst may be over on the home front.