By Wayne Cole
SYDNEY (Reuters) - Asian shares spent much of Friday in a state of suspended animation as tension mounted ahead of jobs data that could make or break the case for an imminent scaling back in U.S. stimulus.
Government borrowing costs from Japan to Australia hit fresh highs on trepidation the Federal Reserve could start tapering its $85 billion of monthly debt purchases at its policy meeting on December 17 and 18.
"It's still 50/50 as to whether they move in December or wait to see a bit more certainty that recent strength will be sustained," said Shane Oliver, head of investment strategy and chief economist at AMP Capital.
While all the uncertainty was a drag for now, he was optimistic longer term. "Tapering will only occur because the Fed is more confident the U.S. recovery is sustainable," argued Oliver. "In other words, mission accomplished."
"And the Fed will likely couple the start to tapering with a move to further push out expectations for the first rate hike."
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For the moment, though, discretion was coming out ahead of valour and share markets across Asia were mixed at best.
Japan's Nikkei at least managed to steady after steep falls the previous two days.
Dealers said offshore investors remained buyers of exchange-traded funds and index heavyweights in the firm belief the Nikkei is on a sustained uptrend given the determination of the Bank of Japan to beat deflation.
MSCI's broadest index of Asia-Pacific shares outside Japan was dead flat, as was South Korea's.
Shanghai stocks slipped 0.6 percent as China set its yuan at a record high, continuing the slow appreciation of the currency.
The lead from Wall Street was again less than helpful with the Dow Jones and the S&P 500 both ending down 0.43 percent. That marked a fifth straight day of losses as investors fretted about the risk of Fed tapering.
Crucial to that decision could be the payrolls report for November due later Friday. The median forecast is for an increase of 180,000 in payrolls with the jobless rate steady at 7.2 percent.
The market would tend to see anything over 200,000 as greatly adding to the chance of a tapering this month, while a result under 150,000 would diminish the risk.
It is worth remembering that total U.S. employment is over 136 million so the difference in a monthly rise in jobs of 150,000 or 200,000 is statistically insignificant, yet it has the power to move markets massively.
PARSING DRAGHI
Not helping was that Thursday's U.S. data seemed strong on the surface but the detail was not so positive. While economic growth was revised up to an annualised 3.6 percent for the third quarter, all the increase came in a build up of inventories.
That led analysts to assume inventories would be run down this quarter and thus drag on growth. Indeed, economists at Westpac saw a chance that the economy might actually shrink.
"We are not forecasting recession, but don't use these apparently solid GDP data as evidence tapering is imminent," they wrote in a note to clients.
Yet the headline growth number was enough to send yields on 10-year U.S. Treasury notes to 2.87 percent, just off a three-month peak. Yields in Japan hit their highest in seven weeks, while 10-year yields in Australia reached territory last seen in early 2012.
European yields had already climbed after European Central Bank President Mario Draghi sounded in no hurry to take further stimulative action.
In particular, the market was spooked when Draghi played down the need for another long-term liquidity operation (LTRO). Dealers had been hoping for just such an operation to ease a liquidity squeeze over year end.
As a result yields on two-year German government debt spiked to 21 basis points, from just 12 at the start of the week, and took the euro higher in their wake.
The single currency was up at $1.3662 on Friday having finally cracked tough resistance at $1.3620. The next chart target was $1.3705/18, which would not be too distant from the 2013 top of $1.3832.
Against the yen, it edged up to 139.27, but struggled to break the five-year peak of 140.03. The dollar held at 101.93 yen after a couple of days of decline.
In commodity markets, spot gold held at $1,225.75 an ounce, heading for a loss for the week of 2 percent.
Nymex crude was up 2 cents at $97.40, cementing gains of 5 percent for the week so far thanks to a drop in U.S. crude stocks. Brent crude added 28 cents to $111.26.
(Editing by Shri Navaratnam)