Tuesday, October 26, 2010

Asian stocks slip as dollar fights higher

HONG KONG: Asian stocks slipped on Tuesday, Oct 26 but were near a 28-month high, while the dollar edged up against the euro as dealers took some profits with debate about the outcome of the next Federal Reserve meeting clouding the near-term outlook.

After no major policy initiatives emerged from a Group of 20 finance ministers meeting over the weekend, investors had kept selling the dollar on expectations that further asset-buying from the Fed will lead to debasement of the U.S. currency.

However, Fed officials have not been uniform in their comments about "QE2", leading to some doubts in markets about how big such a programme will be. Kansas City Fed President Thomas Hoenig even called more asset buys by the central bank a "very dangerous gamble".

Expectations of more cheap money flooding the financial system have been pushing up global equity and commodity prices.

The euro was down 0.2 percent on the day at $1.3940 after rising as high as $1.4080 overnight.

The dollar was largely unchanged at 80.80 yen, very close to a 15-year low of around 80.41 yen and not far from a record low of 79.75 yen.

Japan's finance minister, Yoshihiko Noda, was due to hold a news conference that will be closely watched for warnings of intervention after the dollar hit 15-year lows against the yen on Monday. One trader said a fall in the dollar to below 79.75 yen could be the catalyst for further intervention.

Markets increasingly believe G20 signals against competitive devaluation will make it tough for Tokyo to intervene, and verbal warnings alone are unlikely to keep the yen from breaking above record high.

G20 finance ministers pledged at the weekend to move towards market-determined exchange rates and commit to a variety of policies to reduce excessive external imbalances.

The MSCI index of Asia Pacific stocks outside Japan slipped 0.3 percent but remained close to a 28-month high hit last week.

The MSCI's emerging market stock benchmark was up 0.12 percent at 0200 GMT, while the dollar held up 0.01 percent against a basket of currencies.

A slew of earnings due shortly has helped keep focus on Asian stocks, but the Singapore stock exchange's $8.3 billion takeover of Australia's ASX Ltd faced a hurdle after key political leaders voiced concern over the deal and hinted they may oppose it in parliament.

SGX stock was down 2.4 percent after falling 6.2 percent on Monday.

Australia's Greens Party, which holds the balance of power in the upper house Senate, said it had strong concerns about the deal and may not support lifting the ASX's 15 percent ownership cap.

For most investors, the Fed meeting next week was a potential source of volatility.

JPMorgan Asset Management warned its clients not to become too carried away with the prospect of quantitative easing, the Fed's expected assets purchases.

"Strong asset price gains were seen as one of the primary objectives of QE, with the central bank reportedly keen to boost household wealth and to prompt risk appetite within the economy," it said.

"As a result, strong gains ahead of the FOMC arguably reduce the need for QE and thus increase the chances of disappointment when the Fed finally announces the outcome of its deliberations."

Elsewhere, U.S. light sweet crude oil was up 0.34 percent, to $82.23 per barrel while gold was up 0.13 percent. - Reuters

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