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GLOBAL MARKETS-Asian shares fall on worry over U.S. fiscal cliff

Source : REUTERS
Last Updated: Thu, Nov 08, 2012 10:27 hrs

* MSCI Asia ex-Japan falls, Nikkei opens down 1.2 pct

* Greece clinches austerity approval, euro stays pressured

By Chikako Mogi

TOKYO, Nov 8 (Reuters) - Asian shares fell on Thursday as investors worried about the fiscal crisis in the United States and the European economy's further deterioration, underpinning safe-haven currencies such as the yen and dollar.

President Barack Obama had little time to savor victory on Wednesday before he fac es a looming fiscal showdown and a still-divided Congress able to block his every move.

MSCI's broadest index of Asia-Pacific shares outside Japan eased 0.3 percent, retreating from a near eight-month high on Wednesday. Australian shares tumbled 1 percent after all major U.S. stock indexes slumped over 2 percent overnight.

Japan's Nikkei average opened down 1.2 percent.

World shares and the euro slid on Wednesday on concerns over the U.S. fiscal challenges. Congress must avert the "fiscal cliff" of nearly $600 billion worth of spending cuts and tax increases set to kick in early 2013. There is also the issue of a debt ceiling, which needs to be raised to avoid a government shutdown.

Sentiment was also dented by a gloomy future for Europe after the European Commission said the euro zone economy would barely grow next year.

"The general trend of weaker equities, higher bond prices and a weaker dollar will likely continue," said Kazuto Uchida, an executive officer and general manager of the global markets division at the Bank of Tokyo-Mitsubishi UFJ.

"A key gauge to risk appetite is how far U.S. equities will decline and whether U.S. 10-year yields will drop to 1.5 percent, as some had predicted," he said.

A sharp retreat in risk appetite boosted safe-haven U.S. Treasury prices on Wednesday, with the benchmark 10-year yield ending down 11 basis points at 1.6246 percent for its biggest single-day drop since May 30.

The dollar rose to a two-month high against a basket of major currencies of 80.924 on Wednesday, benefiting from the U.S. currency's safe-haven appeal. The dollar was down 0.1 percent against another safe-haven currency, the yen, at 79.92 .

Top U.S. Republican John Boehner said on Wednesday that Washington should find a short-term solution to avoid the fiscal cliff and then work on a substantive debt reduction plan in 2013.

The U.S. sovereign credit rating will not be affected for the time being as Moody's Investors Service said on Wednesday it will hold off on its judgment of whether to cut the rating until after the 2013 budget process is completed.

The euro stayed pressured at $1.2754, although it was off Wednesday's two-month low of $1.2736.

Greece's parliament narrowly voted to approve an austerity package early on Thursday to unlock vital aid and avert bankruptcy, despite internal rifts in both ruling New Democracy and PASOK parties and violent demonstrations.

"The Greek vote is gone by, the flash Obama panic has forced ... investors to close down their positions to lock in profits," said Societe Generale analyst Sebastien Galy in a note to clients. "We are left with the usual story of flatter US Treasuries helped by renewed reserve activity."

The European Central Bank holds its policy meeting later in the day, and is expected to keep interest rates unchanged.

The Chinese congress starts on Thursday to usher in a once-in-a-decade leadership change against a backdrop of growing social unrest, public anger at corruption and a yawning gap between rich and poor.

Oil tumbled on Wednesday and Europe and the U.S. amid concerns about weak demand for fuel, sending both Brent and U.S. crude futures down more than $4.

U.S. crude was up 0.3 percent to $84.72 a barrel, after settling at its lowest level since July at $84.44.




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