tokyo 08 02, 2012, 09:50 IST
Asian shares fell but the euro and commodities inched higher on Thursday on investors' lingering hopes for action from the European Central Bank later in the day, after the U.S. Federal Reserve stopped short of offering fresh stimulus overnight.
MSCI's broadest index of Asia-Pacific shares outside Japan eased 0.2 percent, but Australian shares eked out a 0.3 percent gain after data showed retail sales rose surprisingly strongly in June and the trade account improved to a small surplus in June, against a deficit forecast.
Japan's Nikkei stock average gained 0.3 percent on ECB hopes and a weaker yen, and as investors bought back battered shares after a drop on Wednesday.
"If all goes according to expectations, 1,900 points looks well within reach, but anything short of major policy action by the ECB could trigger a heavy sell-off," said Lee Young-gon, an analyst at Hana Daetoo Securities, referring to Korea's benchmark stock index, which stood little changed near 1,880.
Markets have been hoping the ECB would resume its bond buying, called the Securities Market Programme (SMP), to help drive down borrowing costs for Italy and Spain which had soared to critical levels seen unsustainable for their economies.
Germany's Sueddeutsche Zeitung newspaper reported that ECB President Mario Draghi will unveil a two-pronged approach on Thursday, using both the ECB and the future euro rescue fund European Stability Mechanism, to buy bonds from Spain or Italy.
"The reactivation of SMP is not in our base scenario; hence, we expect the market to be disappointed," Barclays Capital analysts said in a research note. "We believe this likely disappointment will continue to favour our short EURUSD positions for the week," they said.
The euro traded up 0.2 percent at $1.2247, still below a three-week high of $1.2390 touched on Friday but above a two-year low around $1.2042 reached last week.
FED AND DOLLAR
U.S. stocks and Treasuries fell while the dollar rallied against the euro and yen on Wednesday after the Federal Reserve offered no new monetary stimulus at the end of a two-day policy meeting.
But the Fed kept the door open for further bond buying, known as quantitative easing, to help a U.S. economic recovery that it said had lost momentum this year, shifting its tone from its previous assessment in June when Fed officials said the economy had been "expanding moderately."
Investors will now focus on the annual central bankers' meeting at Jackson Hole on Aug 31 for signs of possible Fed action, said Andrew Wilkinson, Chief Economic Strategist at Miller Tabak & Co.
The dollar firmed slightly against the yen to 78.50 yen, recovering from a two-month low of 77.90 yen hit on Wednesday. The dollar was also underpinned by wariness that the Japanese authorities will intervene to stem the yen's excessive appreciation which hurts its economy, traders said.
But the yen was likely to struggle to break its jinx of rising against the dollar in August, having fallen only twice in the month of August since 1999.
"The Fed has retained the option of further monetary easing which will keep the dollar pressured, and puts a slight upward bias towards the yen against the dollar," said Takao Hattori, senior investment strategist at Mitsubishi UFJ Morgan Stanley Securities in Tokyo.
"The dollar's uncertainty helps ease some pressure on the euro even if the euro's outlook remains gloomy. The euro has established its position as a reserve currency for other countries, such as China, and for investors looking to diversify portfolios, which has helped prevent its collapse," he said.
Spot gold recovered, inching up 0.2 percent to $1,602 an ounce on Thursday while Brent crude futures steadied near $106 a barrel and U.S. crude edged down 0.1 percent to $88.81 a barrel.
Copper rose 0.5 percent to $7,463 a tonne.
Asian credit markets firmed slightly early on Thursday, with the spread on the iTraxx Asia ex-Japan investment-grade index narrower by 2 basis points.
Standard & Poor's on Thursday affirmed Germany's top AAA credit rating and said its outlook remained stable, contrasting with rival credit ratings agency Moody's Investors Service which last month cut its outlook for Germany as well as the Netherlands and Luxembourg to negative from stable, citing Europe's debt crisis.
