tokyo 08 30, 2012, 11:30 IST
Asian shares hit a one-month low on growth concerns while major currencies trod water on Thursday as investors waited to see whether U.S. Federal Reserve Chairman Ben Bernanke will give any hint about further U.S. stimulus in a speech to fellow central bankers on Friday.
Markets sensitive to industrial demand, such as iron ore, were pressured by the slowdown in the Chinese economy, while the decline in dollar-based commodities and energy prices also reflected investors toning down elevated expectations for further U.S. monetary easing next month.
European equities were expected to drop, with financial spreadbetters calling London's FTSE 100, Paris's CAC-40 and Frankfurt's DAX to open down as much as 0.5 percent.
Relatively positive data released this month pointed to a mild U.S. recovery, even if it lacked strength to entirely stamp out further easing expectations, nailing the Standard & Poor's 500 Index near a four-year high and the dollar in familiar levels against the yen around 78.61.
"Central banks' accommodative stance is the most significant factor for markets, so investors will be increasingly reluctant to take positions and be sensitive to swings in the dollar in the run-up to Jackson Hole," said Naohiro Niimura, a partner at Tokyo-based research and consulting firm Market Risk Advisory.
Bernanke will speak at an annual gathering of central bankers and economists from around the world hosted by the Fed at Jackson Hole in the United States. The Fed chairman has used the event in the previous two years to signal the central bank's easy policy intentions.
"Receding expectations for an imminent Fed easing weighed on dollar-based commodities while concerns about weak demand from the world's largest consumer, China, hit commodities such as iron ore, which are driven more by fundamentals than speculators."
MSCI's broadest index of Asia-Pacific shares outside Japan eased 1.1 percent to a four-week low, pulled down by a 2.3 percent plunge in its materials sector. Japan's Nikkei stock average slid 1.2 percent.
Australian shares plunged 1.2 percent to a two-week low as miners slid as iron ore prices hit their lowest levels since late 2009. Rio Tinto fell below A$50 a share for the first time in over three years. The ore is Australia's single biggest export earner.
"Global uncertainties ... are driving our mining customers to be more cautious with their capital," said Craig Kipp, chief executive of drilling firm Boart Longyear Ltd.
Global demand for iron ore will not grow and could even drop in the second half of 2012 compared with the first six months, with supply also rising, Zhang Dianbo, head of purchasing at Baoshan Iron and Steel Co Ltd, China's biggest listed steelmaker, told an industry conference on Thursday.
The Australian dollar fell to a one-month low around $1.0320.
Hong Kong shares <.HSI> tumbled 1.3 percent, breaching a long term chart support, dragged down by weakness in the property sector and disappointing first half earnings from Agricultural Bank of China (AgBank). Shanghai shares eased 0.4 percent, plumbing levels unseen since early 2009.
Despite sounding out primary dealers on potential demand for 28-day reverse repurchase agreements on Wednesday, China's central bank on Thursday opted against using the unconventional money market tool, that is widely seen as a compromise between short-term liquidity injections and a cut in bank reserve requirement ratios.
EVENTS KEEP MARKETS RANGE-BOUND
Brent crude inched up 0.1 percent to $112.65 a barrel, recovering from Wednesday's fall as oil facilities in the Gulf of Mexico were largely spared storm damage, while U.S. crude oil fell 0.5 percent to $95.02 a barrel.
The euro firmed 0.1 percent to $1.2544 and held steady against the yen at 98.60.
Speculation rose that the European Central Bank was moving ahead on a plan to buy bonds to lower peripheral euro zone states' borrowing costs, after ECB chief Mario Draghi wrote in an opinion piece in a German newspaper on Wednesday that the bank needed to employ "exceptional measures."
Markets are expecting the ECB to provide details of the bond-buying scheme at its policy-setting meeting on September 6.
Markets might remain in ranges for weeks beyond the Jackson Hole and ECB meetings, with key events lined up that could shed more light on the timing of any further Fed easing, and the roadmap for the euro zone's crisis-management.
A key U.S. jobs report is due on September 7 ahead of the Fed's September 12-13 policy meeting and the German constitutional court rules on the region's bailout funds on September 12, before euro zone finance ministers meet on September 14-15.
A report on Greece by its international lenders is due by early October to determine whether Athens will get a bailout.
The currency options market suggested players were not expecting sharp price swings, with one-month euro/dollar volatility still below 10 percent.
Later on Thursday, Italy will issue 6.5 billion euro longer-dated bonds, after two successful auctions earlier this week.
Asian credit markets weakened, pushing the spread on the iTraxx Asia ex-Japan investment-grade index wider by 3 basis points.
