Asian shares, U.S. dollar capped as more data looms

By Chikako Mogi

TOKYO (Reuters) - Asian shares inched higher and the dollar was pressured with investors growing cautious ahead of new indicators that could flag slowing U.S. economic momentum.

Overnight, the Institute for Supply Management said its index of national factory activity fell to 51.3 from 54.2 in February, with new orders, a key indicator of future growth, accounting for much of the fall.

U.S. stocks fell as trading resumed on Monday after an early close on Thursday, when the Standard & Poor's 500 Index <.spx> touched a record high before markets closed for the Good Friday holiday.

"The weak manufacturing ISM points toward softening activity at the end of Q1 and reinforces concerns that the fiscal tightening may adversely affect growth in the remainder of the year," Barclays Capital said in a research note.

"Weak international growth, coupled with a strong dollar and a decelerating ISM in the U.S., could set up weaker sentiment heading into the 2013 first-quarter earnings season."

A run of generally solid U.S. economic reports helped restore global risk appetite despite worries in the euro zone after the Cyprus bailout and some growth concerns in China.

The private ADP employment report and the latest weekly jobless claims figures precede the key monthly U.S. nonfarm payrolls report on Friday.

The MSCI's broadest index of Asia-Pacific shares outside Japan <.miapj0000pus> was up 0.3 percent, underpinned by higher Australian and Chinese shares.

Australian shares <.axjo> were up 0.2 percent as investors returned from the Easter break looking for bargains after last week's dip, but miners were pressured by worries about metals demand from China.

Australian investors will focus on comments by the Reserve Bank of Australia, which is expected to keep interest rates unchanged at a record low 3.0 percent at its policy meeting this session.

South Korean shares were barely changed while Japanese stocks slumped as investors rushed to book profits after a stellar first-quarter showing.

DOLLAR LOSES MOMENTUM

"Investors are not making big bets following subdued manufacturing data in the United States and China and ahead of two major events later this week," Lee Jae-man, an analyst at Tong Yang Securities said, referring to meetings of central banks in Japan and Europe.

The Nikkei stock average <.n225> tumbled as much as 2.7 percent to a one-month low before trimming most of the losses to fall 0.2 percent by midday. The index logged its best quarterly performance in nearly four years in the first three months of 2013. <.t/>

Both the Bank of Japan and the European Central Bank hold policy meetings later in the week. The BOJ is expected to announce fresh stimulus measures under its new leadership in line with Prime Minister Shinzo Abe's drive to reflate the economy.

The weak U.S. data weighed on the dollar, pushing it down to a one-month low of 92.96 yen on Tuesday. The euro steadied around 119.69 yen, a tad above to 119.49 yen hit on Monday, its lowest since February 27.

Benchmark 10-year U.S. Treasury yield inched closer to 1.8 percent after topping 2 percent in early March for the first time in almost a year. Ten-year Japanese government bond yield has declined from around 0.7 percent early in March to a near-decade low of 0.51 percent last week, before rebounding to around 0.56 percent.

"Expectations for an expansionary U.S. economy are weakening and long-term yields are falling, that's what is primarily driving the dollar lower," said Koji Fukaya, CEO and currency strategist of FPG Securities in Tokyo.

A weak yen trend which had been in place since last November had transformed into a strong dollar trend on signs of stronger U.S. growth earlier this year, but the latest soft indicator stoked concerns about such growth prospects.

"In such a context, markets were ripe for position adjustments, also as the second quarter may see effects of U.S. fiscal tightening taking a toll on the economy, even if the underlying recovery path remains firm," Fukaya said.

The waning of the dollar's relative outperformance and Cyprus at least avoiding bankruptcy were preventing the euro from falling through recent lows, although the currency faced more downside than the upside due to its wobbly fundamentals, traders said.

The euro inched up 0.2 percent to $1.2866, moving away from a four-month low of $1.2750 touched last week.

U.S. crude futures fell 0.2 percent to $96.90 a barrel while Brent also eased 0.2 percent to $110.88.

A weak dollar benefited bullion, keeping spot gold above $1,600 an ounce.

(Additional reporting by Hyunjoo Jin in Seoul; Editing by Eric Meijer)

Source: http://news.yahoo.com/asian-shares-u-dollar-capped-more-data-looms-003206639--finance.html

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