Fed stimulus jitters drive Asian shares to 2013 lows

By Chikako Mogi

TOKYO (Reuters) - Asian shares slipped to fresh 2013 lows on Thursday as growing uncertainty on whether the U.S. Federal Reserve would roll back its stimulus this year kept markets on edge, while choppy Japanese equities put pressure on the dollar against the yen.

MSCI's broadest index of Asia-Pacific shares outside Japan extended losses to drop as much as 0.9 percent to its lowest in six months. It had just snapped a four-day losing streak on Tuesday.

Australian shares, tracking a fall on Wall Street overnight, were off 0.6 percent after hitting a fresh 4-1/2-month low earlier. Hong Kong and Shanghai shares were also down. The fall in U.S. equities triggered by soft U.S. data spurred safe-haven bids into U.S. Treasuries on Wednesday.

A report by payrolls processor ADP showed U.S. private employers added 135,000 jobs in May, less than the 165,000 expected, while the Fed's Beige Book also provided a sober reading on hiring. Service-sector data from the Institute for Supply Management also showed employment in that part of the economy grew at its lowest rate in nearly a year in May.

Wednesday's set of U.S. data suggested the country's labour conditions may not yet prompt the Fed to trim its massive bond-buying programme. Still, it has sharpened the markets' focus on the more important monthly nonfarm payrolls data due on Friday.

The U.S. central bank has made an improving jobs situation a precondition for softening its strong stimulus measures. While the latest patch of news undershot expectations, economic reports have generally backed views there is a mild recovery.

"It means the Fed is between a rock and a hard place... There is not really much they can do," said Credit Suisse equity strategist Damien Boey in Sydney.

Japan's Nikkei stock average was back down 0.2 percent on a day of gyrations. After Thursday's opening, it fell 0.9 percent to a two-month-low, then rebounded to be up 1.7 percent before sliding again.

On Wednesday, the Nikkei skidded 3.8 percent, extending a selloff that began on May 23, a day after Fed Chairman Ben Bernanke suggested the U.S. central bank could start paring bond purchases as soon as the Fed's next few meetings if the economy improves further.

On top on the shaky global mood, Tokyo's tumble in the last session was sparked by disappointment that Prime Minister Shinzo Abe's latest tranche of measures to revive the world's third-biggest economy dodged some of the tough issues.

"Abe should have delivered a simple message clarifying the image of what Japan will look like in a few years, giving something concrete such as a potential growth rate or how many jobs may be created as a result of these steps," said Tetsuya Inoue, a senior researcher at Nomura Research Institute.

"The government is on the right track, but the announcement was ill-timed, coming just when jittery markets were looking for something to soothe their battered sentiment. But the Nikkei now offers a good value for long-term investors who missed the sharp and rapid rally into the May peak," Inoue said, referring to the Nikkei's 5-1/2-year peak scaled just before the sell-off.

Currency markets have been taking their cues from the Nikkei and its volatility put a cap on the dollar.

The dollar was up 0.1 percent against the yen at 99.20, after suffering a one-percent fall overnight. The dollar index, measured against a basket of six key currencies, was steady but near Monday's three-week low of 82.428.

"The dollar's longer-term bullish outlook remains intact as the Fed will eventually start scaling down its stimulus if jobs continue to be added, while the Bank of Japan will expand its monetary base. Current market sentiment is very bearish, but it's hard to see a sharper dollar selling from here," said Yuji Saito, director of foreign exchange at Credit Agricole in Tokyo.

The euro was steady around $1.3092, showing resilience despite weak data.

European shares dropped to six-week lows on Wednesday after data indicated business activity in the euro zone eased in May and retail sales in April indicated weak consumer demand.

The data kept pressure on the European Central Bank to do more to stimulate growth, but was not seen as changing the prevailing view that the ECB will leave monetary policy unchanged at a Thursday meeting.

U.S. crude futures held steady around $93.75 a barrel while Brent eased 0.2 percent to $102.83.

(Additional reporting by Maggie Lu Yueyang in Sydney; Editing by Shri Navaratnam and Richard Borsuk)

Source: http://news.yahoo.com/fed-stimulus-jitters-volatile-nikkei-weigh-asian-shares-010932109.html

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