Asian shares, euro steady; US Federal Reserve move in focus

NDTV Profit Desk

11 Dec 2012, 08:19 AM IST

Asian shares, euro steady; US Federal Reserve move in focus

Asian shares and the euro steadied on Tuesday, drawing support from expectations that the U.S. Federal Reserve will take fresh economic stimulus measures this week.

MSCI's broadest index of Asia-Pacific shares outside Japan nudged up 0.1 per cent to a 16-month high, led by Australian shares which gained 0.3 per cent to their highest in nearly two months on a rise in metals and oil prices and hopes for Fed action.

South Korean shares opened 0.3 per cent higher while Japan's Nikkei stock average opened down 0.2 per cent.

U.S. Treasury prices edged higher on Monday on worries about U.S. budget wrangling, Italy's political rumbling and expectations of further monetary easing by the Fed.

At the end of the two-day meeting which begins on Tuesday, the Fed is expected to announce it will buy $45 billion per month of longer-dated Treasuries beginning in January to replace the current Operation Twist programme, which expires at the end of December.

Under the programme, it sells shorter-dated U.S. government debt and buys longer-dated Treasuries to extend the duration of its balance sheet.

Such expectations weighed on the dollar and helped to underpin the euro, which traded at $1.2937, off Monday's low of $1.2880.

The dollar was steady around 82.37 yen.

The euro was also supported as Italian Prime Minister Mario Monti played down market fears over his decision to resign, saying there was no danger of a vacuum ahead of an election in the spring.

"The euro's dip below $1.2900 proved to be short-lived," said Vassili Serebriakov, strategist at BNP Paribas. "FX markets are showing some notable resilience following news of Italian PM Mario Monti's imminent resignation."

FISCAL WORRIES

European partners urged the next Italian government on Monday to stick to Monti's reform agenda, after his decision to resign early and Silvio Berlusconi's return to frontline politics rattled financial markets.

Monti had earned market confidence over the past year in indebted Italy, as he spearheaded a reform agenda to rescue the euro zone's third-largest economy from the threat of a Greek-style collapse.

His earlier-than-expected departure raised concerns about the prospects for Italy's fiscal reforms, lifting Italy's benchmark 10-year bond yield up to 4.83 per cent, the highest in more than three weeks, while driving Italian shares down more than 2 per cent.

Investors also worry about an impact on neighbouring Spain, which is struggling with high debt and studying the need for outside help.

Fiscal worries in the United States have also weighed on investor sentiment, limiting their activity as trading winds down towards the year-end holiday season.

"It would be difficult to take large positions before more details are out," said Hiroichi Nishi, general manager at SMBC Nikko Securities, referring to the U.S. budget impasse to avert some $600 billion of tax hikes and spending cuts scheduled to start in January, known as the fiscal cliff.

Economists have warned that a failure to break the impasse would send the U.S. economy back into recession, further weighing on the fragile global economy.

The White House and House of Representatives Speaker John Boehner's office held more negotiations on Monday on ways to break the budget stalemate, but neither side showed any public signs that they were ready to give ground. The talks picked up pace after Boehner met with President Barack Obama on Sunday, raising hopes of progress.

U.S. crude futures inched up 0.1 per cent to $85.62 a barrel while spot gold was little changed at $1,711.20 an ounce, supported by a lack of progress in the U.S. budget talks and expectations for new Fed stimulus measures.