* U.S. Nov nonfarm payrolls due at 1330 GMT
TOKYO, Dec 7 (Reuters) - Asian shares touched fresh 16-month
highs on Friday following modest overnight gains in global
equities as investors watched progress in U.S. budget talks with
expectations for an eventual deal and awaited U.S. nonfarm
payrolls data later in the day.
The euro hovered near a one-week low against the dollar,
having fallen after the European Central Bank painted a bleak
outlook for the euro zone and discussed cutting interest rates
at its policy meeting on Thursday when it kept rates steady.
Recent indicators suggesting stabilising growth in China,
the world's second-largest, economy also helped improve
sentiment, although the Asian Development Bank slightly lowered
its 2012 and 2013 growth estimates for developing Asia on Friday
as frail global demand drags on the region.
Buoyed by strong domestic demand, developing Asian economies
have shown relatively more resilience compared with developed
and more export-reliant economies such as Japan and south Korea.
MSCI's broadest index of Asia-Pacific shares outside Japan
rose 0.6 percent, and was set for its
third-straight weekly gain with a 1.4 percent advance. The index
has gained about 17 percent year-to-date, compared to a loss of
nearly 18 percent last year.
South and Southeast Asian bourses have outperformed, with a
32 percent year-to-date surge in the Philippines, a
nearly 31 percent gain in Thailand, Indian shares
rising 26 percent and Indonesia up 12 percent
Hong Kong shares were up 0.5 percent to a 16-month
high and risen 21 percent so far this year, despite facing bouts
of pressure from sputtering mainland Chinese markets.
South Korean shares were up 0.5 percent and
Australian shares jumped 0.9 percent to its highest in
nearly seven weeks, as top miners were supported by rebounding
iron ore prices and banks recovered from losses the previous
"One of the reasons for the gains is better news we've seen
from China and expectations the economy there has stabilised and
growth has improved modestly," said Michael McCarthy, chief
market strategist at CMC Markets.
Japan's Nikkei stock average inched up 0.2 percent.
U.S. stocks advanced modestly while the FTSEurofirst 300
index of top European shares hit an 18-month closing
high on Thursday.
As superstorm Sandy disrupted U.S. economic activity,
nonfarm payrolls in November are expected to have increased only
93,000, compared to October's 171,000 job gain, a Reuters survey
of economists showed. The unemployment rate is seen holding
steady at 7.9 percent.
"A soft number should reinforce the case for the Fed doves
ahead of next week's FOMC meeting where QE is likely to be
increased in order to at least offset the expiration of
Operation Twist. Hence a soft report should hurt USD and vice
versa," Sean Callow, senior currency strategist at Westpac bank
in Sydney, said in a note.
At its Dec. 11-12 meeting, the Federal Reserve is expected
to announce a new round of Treasury bond purchases to reinforce
quantitative easing, replacing the expiring programme called
Operation Twist, under which it bought $45 billion of
longer-dated bonds a month while selling its shorter-date
The dollar traded at 82.47 yen, sticking close to a
7-1/2-month high of 82.84 hit on Nov. 22.
With little to show after a month of posturing, the White
House and Republicans in Congress dropped hints on Thursday that
they had resumed low-level private talks on breaking the
stalemate over the "fiscal cliff" but refused to divulge
Markets have been keeping up hope that Washington would
eventually avert some $600 billion of tax hikes and spending
cuts scheduled to start in January. Economists have warned that
failure by Congress to reach an agreement on deficit reduction
could tip the U.S. economy back into recession, further weighing
on the fragile global economy.
"The main board is extending its upward trend that began in
mid-November on hopes for a positive conclusion to the U.S.
'fiscal cliff' and economic growth policies from China," said
Park Hae-sung, an analyst at LIG Investment & Securities.
EURO ON DEFENSIVE
The euro steadied at around $1.2968, after falling
nearly 1 percent to $1.2950 on Thursday in its biggest
one-day loss in a month, and retreating from a seven-week peak
of $1.3127 set mid-week.
ECB President Mario Draghi said on Thursday policymakers had
held a wide discussion on interest rates, including negative
deposit rates, leaving the door open to a possible cut in
borrowing costs next year.
Creating negative deposit rates means effectively charging
depositors rather than paying them interest, with an aim of
forcing banks to put their money to work elsewhere.
The ECB's new staff also projected gross domestic product
next year could range from a contraction of 0.9 percent to
growth of just 0.3 percent, suggesting contraction is far more
likely than not. It forecast inflation of 1.1 percent to 2.1
percent next year.
"It is unusual that a negative growth projection for the
next year is offered before the end of the current year, but
with such a view, markets are naturally pricing in a interest
rate cut," said Daisuke Karakama, market economist for Mizuho
Corporate Bank in Tokyo.
He expected the euro to remain vulnerable with the risk of
falling back to $1.2 at some point, but the single currency
appeared to be supported currently by year-end repatriation
U.S. crude futures inched up 0.3 percent to $86.53 a
barrel and Brent rose 0.2 percent to $107.27.