By Chikako Mogi
TOKYO, Jan 4 (Reuters) - Asian shares fell on Friday,
tracking overnight weakness in global equities after senior
Federal Reserve officials expressed concerns about continuing to
expand stimulative bond buying, but the dollar extended gains as
U.S. debt yields rose.
Minutes from the Fed's December policy meeting released on
Thursday showed some voting members of the Federal Open Market
Committee were increasingly concerned about the potential risks
of the Fed's asset purchases on financial markets, even if it
looked set to continue an open-ended stimulus program for now.
The Fed's asset-buying policy has been pivotal in
underpinning investor risk appetite and supporting global
equities, so the more hawkish Fed minutes unnerved financial
markets on Thursday, driving benchmark U.S. Treasury yields up
to a near eight-month high and weighing on equities and oil,
while lifting the dollar.
The dollar was also bolstered by data showing U.S.
private-sector hiring improved in December, raising hopes for a
strong monthly payrolls report due later in the day, a key gauge
to the U.S. economy and the Fed's future policy course.
The rise in the dollar hit precious metals and oil on Friday
as a firmer dollar makes dollar-based assets more expensive for
The Fed's minutes prompted investors to book profits from
rallies immediately after U.S. lawmakers earlier this week
narrowly avoided falling off the 'fiscal cliff' of automatic
taxes increases and spending cuts, which risked derailing the
'Market moves largely reflect positioning after the recent
rallies and before the nonfarm payrolls, which could tip the
markets either way,' said Yuji Saito, director of foreign
exchange at Credit Agricole in Tokyo.
MSCI's broadest index of Asia-Pacific shares outside Japan slid 0.8 percent, after scaling its highest
since August 2011 on Thursday.
Australian shares slipped 0.4 percent, retreating
from a two-day rally which took shares to their highest in more
than 19 months on Thursday. Hong Kong shares tumbled 0.8
percent but Shanghai shares inched up 0.2 percent.
The dollar hit its highest since July 2010 against the yen
at 87.78 while the euro fell to a three-week low of
$1.3019 on Friday. The U.S. dollar also touched a
near four-week high against a basket of major currencies.
'Dollar-positive momentum is solid as the fiscal cliff was
averted, the overnight data was good and yields were rising. I
won't be surprised to see the dollar rise to 90 yen soon,' said
Hiroshi Maeba, head of FX trading Japan for UBS in Tokyo.
'Despite repeated Japanese intervention, the dollar had
refused to strengthen in the past, but now, it's advancing
without any action, suggesting the direction has completely
changed to support continued dollar buying,' Maeba said.
The yen's tumble pushed Japan's benchmark Nikkei stock
average up 2.6 percent to its highest since March 2011,
outshining the Asian regional bourses. Japanese markets were
closed from Dec. 31 to Jan. 3 for the new year's holidays.
Japanese government bonds skidded on their first trading day
of 2013, with benchmark yields hitting a 3 1/2-month high in
line with surging Japanese equities and a drop in U.S.
FISCAL CLIFF VS DATA
U.S. President Barack Obama and congressional Republicans
face tough talks on spending cuts and an increase in the
nation's debt limit as the hard-fought deal to avert the fiscal
cliff covered only taxes and delayed decisions on expenditures
until March 1.
But investor sentiment was supported by recent data showing
activity in China's services sector and at U.S. factories
expanded in December, which brightened the outlook for global
'The minutes have added a fresh degree of uncertainty into
the investment climate, which is likely to mean a steeper yield
curve. But equity investors should take heart from the fact that
the Fed's perception is qualified on an improving economy,'
Andrew Wilkinson, chief economic strategist at Miller Tabak & Co
in New York, said in a note to clients.
China's services sector saw its slowest rate of expansion in
nearly a year and a half in December, a private sector survey
showed on Friday, but underlying growth revival remained intact,
even if it were modest.
The U.S. economy likely added 150,000 jobs in December,
according to a Reuters survey, up from 146,000 in November. The
unemployment rate is expected to hold steady at 7.7 percent.
Resolution of the U.S. fiscal cliff crisis could spell
trouble for some Asian assets as investors could start to shift
some money out of overpriced Asian investments in favour of the
U.S. on brightening prospects for American stocks.
U.S. crude fell 0.8 percent to $92.17 a barrel while
Brent shed 0.7 percent to $111.38.
U.S. gold futures for February dropped more than 1
percent to around $1,645 an ounce on Friday while spot gold also fell 1 percent to around $1,645, dragging silver down more than 2 percent to $29.48.
Despite the decline in equities markets, sentiment in Asian
credit markets remained upbeat, with the spread on the iTraxx
Asia ex-Japan investment-grade index narrowing by
two basis points.
(Editing by Eric Meijer)
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