Euro firm before ECB rate move; Japan shares inch up
SINGAPORE |
(Reuters) - The euro clung near a 14-month high against the dollar ahead of an expected euro zoneinterest rate rise on Thursday, while gold drifted off a record it scaled on the back of the U.S. currency's weakness and inflation worries.
Asian shares were lackluster, with the Nikkei crawling up, as investors who had bet on falls in recent days realized their gains, but markets elsewhere in the region lost some ground. Major European indexes were seen opening flat-to-lower and S&P 500 index futures weakened a little. .N .EU .L
Brent crude oil eased off a two-and-a-half year peak struck amid worries about war in Libya and unrest in the Middle East.
The Australian dollar, often seen as a play on rising commodities prices because of Australia's large resource sector, rose to a 29-year high against the dollar after stronger than expected jobs data.
The Bank of Japan held its ultra-loose monetary policy steady on Thursday, and signaled its readiness to take further easing steps to support an economy struggling to avoid sliding back into recession after a devastating earthquake last month.
In contrast, the European Central Bank, meeting later in the day, was widely expected to raise interest rates by 25 basis points from a record low 1 percent to curb inflationary pressures, widening the single currency's yield advantage over both the yen and the dollar.
Portugal's request for European financial aid -- seen as inevitable by the bond markets for some weeks but resisted by Lisbon until Wednesday -- was not expected to throw the ECB off its hawkish course.
"The yen has been falling on expectations of diverging monetary policies between Japan, the United States and the euro zone," said Bank of Tokyo-Mitsubishi UFJ analyst Teppei Ino.
"The market ignored Portugal's request for aid because it was seen unlikely to stop the ECB from raising interest rates. But the key is how much they are going to raise going forward."
Higher interest rates will make life harder for struggling peripheral euro zone countries such as Portugal, Greece and Ireland by increase their borrowing costs as the try to tackle a crushing debt burden.
The euro was down 0.1 percent at $1.4310 having risen to $1.4350, its highest since late January 2010, on Wednesday.
The dollar stood at 85.25 yen, having risen as high as 85.54 earlier, almost 10 yen above its record low of 76.25 yen hit in March, days after Japan's earthquake and tsunami.
The euro rose as high as 122.55 yen, just ticks away from the previous day's 11-month peak, before easing back to around 122 yen.
Some analysts said the euro has risen too far too fast, and that ECB President Jean-Claude Trichet must sound hawkish enough to keep alive expectations for around 100 basis points in rate hikes by November for the euro to achieve fresh gains.
"The euro has rallied considerably on the ECB rate hike view but it may be the case of buy the rumor sell on the fact," said Koji Fukaya, chief FX strategist at Credit Suisse.
The Australian dollar rose as high as $1.0481, and also rose to 89.45 yen, its highest since September 2008.
TURNING POINT
Expectations of a turning in the monetary policy cycle, with other developed markets starting to tighten, knocked Japanese government bonds lower.
Benchmark 10-year JGB futures fell 0.26 point to 138.72, while the 10-year yield rose 1.5 basis points to 1.305 percent. The yield spread between two-year euro zone and Japanese government bonds rose to 164.6 basis points, its highest since December 2008.
There was little immediate market reaction to news that U.S. lawmakers had not reached an agreement to avert a government shutdown in budget talks with President Barack Obama.
U.S. stocks inched up on Wednesday, with the S&P 500 .SPX gaining 0.2 percent, as a weekly survey from advisers Investors Intelligence showed the percentage of bulls rose to the highest level in nearly four months.
Tokyo's Nikkei share average .N225 rose 0.1 percent, while MSCI's broadest index of Asia Pacific shares excluding Japan .MIAPJ0000PUS fell the same amount. The MSCI index had hit a succession of near three-year peaks in recent days. .N
Japanese shares have recouped more than two-thirds of the losses sustained immediately after the March 11 earthquake, but remain around 6.5 percent below their close on the day of the disaster.
Market players said Thursday's gains were mostly due to traders who had gone short -- or bet on falls -- in recent days closing out their positions by buying back beaten down shares.
Investors remain cautious about the disruption to factories and the crisis at a crippled nuclear power plant, which operator Tokyo Electric Power Co. (TEPCO) (9501.T) is still trying to stabilize nearly four weeks after the quake.
"The market is increasingly feeling that the TEPCO nuclear problem will take a long time," said Takashi Ohba, a senior strategist at Okasan Securities. "People are also unsure about production losses."
Brent crude eased 0.3 percent to $122.01 a barrel, having reached a two-and-a-half year high above $123 a barrel on Wednesday, and U.S. crude fell 24 cents to $108.59.
Gold traded around $1,454.85 an ounce, down from its record $1,461.91 reached a day earlier.
Precious metals, traditionally a hedge against inflation, have been boosted by rising commodities prices and also the weaker U.S. currency, which makes dollar-denominated assets cheaper for non-U.S. investors.
(Additional reporting by Natsuko Waki, Chikafumi Hodo and Antoni Slodkowski in Tokyo; Editing by Richard Borsuk)
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