GLOBAL MARKETS-Asian shares slip as U.S. budget talks sour, BOJ eases

Chikako Mogi
Reuters Middle East

* MSCI Asia ex-Japan falls but hovers near 17-month high

* Nikkei slumps on profit-taking from 8-month peak

* Yen firms in kneejerk reaction after BOJ eases

* Commodities ease, dollar index inches up

* European shares likely to decline

TOKYO, Dec 20 (Reuters) - Asian shares retreated from near

17-month highs on Thursday and commodities fell as negotiations

to avert a U.S. fiscal crunch turned to personal taunts, putting

at risk a timely solution as well as the health of the world's

largest economy.

European shares will likely follow suit, with financial

spreadbetters predicting London's FTSE 100, Paris's

CAC-40 and Frankfurt's DAX will open down as

much as 0.4 percent. A weak Wall Street start was suggested by a

0.4 percent drop in U.S. stock futures.

The yen firmed against the dollar and the euro in a kneejerk

reaction as the Bank of Japan eased monetary policy on cue,

expanding its asset-buying and lending programme by 10 trillion

yen under intensifying pressure from incoming premier Shinzo Abe

to confront chronic deflation.

Sentiment turned cautious towards risk assets in general,

hurting commodities and commodity-linked currencies while

keeping gold barely above its 3-1/2-month low hit earlier in the

week. The dollar edged up 0.1 percent against a basket of major


"Negotiations are (not progressing) which is probably why

we're seeing a sell-off today and the risk sentiment coming

off," said Natalie Rampono, a commodities analyst at ANZ in

Melbourne. "The markets are being directed by sentiment from the

U.S. fiscal cliff talks and so that will have the biggest

influence on prices at the moment."

MSCI's broadest index of Asia-Pacific shares outside Japan

eased 0.4 percent but held near its highest in

nearly 17 months, tracking global stocks which retreated from

17-month peaks on Wednesday on U.S. budget concerns.

Hong Kong shares also fell 0.5 percent after hitting

a near 17-month high the day before.

But Australian shares defied the general bearish

trend to add 0.4 percent to a 17-month high and Seoul shares

ended up 0.3 percent on speculation conservative Park

Geun-hye's victory in the presidential election would pave the

way for fresh stimulus measures from the government.

The conflict over the stalled fiscal cliff talks grew

heated Wednesday and threatened to become even more so Thursday

when the action is expected to shift for the first time to the

floor of the U.S. House of Representatives.

"If this discussion continues to go as it has gone today

(Wednesday), watch for more selling off as hopelessness begins

to take hold for many investors across all asset classes," said

Neal Gilbert, market strategist at GFT Forex, in a note to


The Nikkei stock average ended down 1.2 percent on

profit taking after closing Wednesday up 2.4 percent and above

the key 10,000 level for the first time since April, as earnings

prospects for exporters improved on the weak yen trend which

gained momentum with mounting expectations for more monetary


The dollar extended losses to fall 0.6 percent to 83.93 yen

after the BOJ's decision from around 84.20 before the

announcement. It hit a 20-month high of 84.62 yen on Wednesday.

The euro slid 0.6 percent against the yen to 110.94 yen,

sharply retreating from a 16-month high of 112.59 yen

reached on Wednesday.

On top of expanding stimulus for the third time in the past

four months, the BOJ also said it would review its guidelines

for medium- and long-term price stability at its next

policy-setting meeting in January. The current range is zero to

2 percent consumer inflation.

Traders said the yen's firmness was likely due to position

adjustments before the year-end holidays after the big event,

the last BOJ meeting for 2012, and likely to be short-lived.

"Market consensus is that the BOJ will have no choice but to

strengthen its accommodative stance, and expectations for easing

will remain intact," said Masashi Murata, senior forex

strategist at Brown Brothers Harriman in Tokyo. "The dollar/yen

was choppy but it is likely that 84 yen level will prove to be a

new support line," he said.

The euro inched down 0.1 percent to $1.3213, slipping

from a 8-1/2-month high of $1.33085 hit on Wednesday after an

Ifo Institute survey showed German business sentiment improving

in December at its fastest rate in 2-1/2 years, boosting hopes

Europe's largest economy will bounce back quickly after a weak

end to 2012.

Data from the Investment Company Institute, a U.S. mutual

fund trade organisation, on Wednesday showed investors in

U.S.-based mutual funds pulled $8.48 billion from equity funds

for the week ended Dec. 12, reflecting nervousness caused by the

uncertainty over the U.S. fiscal cliff.

U.S. crude fell 0.5 percent to $89.53 a barrel and

Brent fell 0.5 percent to $109.83.

London copper was down 0.6 percent to $7,879 a


Gold has fallen prey to funds taking profits before the

year-end book-closing but having held above a key technical

level, the metal's downside may be limited.

Spot gold steadied around $1,667 an ounce, above a

3-1/2-month low of $1,661.01 hit on Tuesday and its 200-day

moving average.

Lacklustre equities slowed trading in Asian credit markets,

widening the spreads on the iTraxx Asia ex-Japan

investment-grade index by 1 basis point.

By using Yahoo you agree that Yahoo and partners may use Cookies for personalisation and other purposes