GLOBAL MARKETS-Cyprus jitters keep Asian shares, euro pressured

Last Updated: Wed, Mar 20, 2013 00:30 hrs

* Cyprus rejects bailout terms; last minute deal hopes still alive

* Asian shares extend decline, close to wiping out 2013 gains

* Euro down versus dollar & yen

* BOJ governor, Fed meeting outcome also in focus

* Japanese markets closed for holiday

By Ian Chua

SYDNEY, March 20 (Reuters) - Asian shares extended losses on Wednesday and investors gave the euro a wide berth after a bailout deal for Cyprus was thrown into disarray.

Cyprus's parliament overwhelmingly rejected a proposed tax on bank deposits as a condition for bailout aid, pushing the Mediterranean island a step closer to the brink of financial meltdown.

The European Central Bank offered some comfort by saying it was committed to providing liquidity within certain limits, even after having threatened to end emergency lending assistance for teetering Cypriot banks.

"It seems like you're going to have a run of negative press over the next few days at least. So until this plays out and until that cloud is dealt with, it's going to be hard to get too optimistic on the outlook in the near term," said Michael Turner, strategist at RBC in Sydney.

The MSCI's broadest index of Asia-Pacific shares outside Japan shed 0.3 percent, extending a 1.7 percent slide on Tuesday. The index is now down around 3 percent from its 2013 peak set a month ago.

South Korean shares lost 0.3 percent, while their Australian counterparts fell 0.4 percent. Japanese financial markets had a reprieve thanks to a public holiday there.

The declines in Asian bourses came as Wall Street's S&P 500 index closed lower for a third day, while the Dow Jones industrial average ended flat after recouping early losses.

Traders said there was no panic in markets because investors are hopeful that the European Union, as so often before, will hash out a last minute deal that keeps Cyprus in the common currency.

"We do not believe that the move by the Cypriot parliament should be seen as the ultimate 'no' vote to the bailout," said Vassili Serebriakov, a strategist at BNP Paribas based in New York.

"Banks in Cyprus are closed until Thursday and we expect a new deal to emerge over the next 24 hours. The failure to ultimately pass a deal would clearly lead to very negative scenarios, possibly involving the question of euro zone membership."

Uncertainty surrounding Cyprus kept the euro pinned at four-month lows against the U.S. dollar. The euro fetched $1.2866, having fallen as far as $1.2844 overnight.

Against the yen, it was down 0.3 percent at 122.26 yen , near a two-week low of 121.45 plumbed Monday.

Yet markets will also be wary of any comments from Haruhiko Kuroda, who becomes governor of the Bank of Japan on Wednesday. Expectations that Kuroda will quickly embark on a much more aggressive monetary policy to fight deflation have recently pushed the yen to multi-year lows versus the euro and dollar.

The dollar index, which tracks the greenback's performance against a basket of currencies, was a tad firmer at 83.048, not far from a seven-month peak of 83.166 set a few days ago.

Investors will also keep an eye on the outcome of the Federal Reserve's two-day policy meeting due to end later on Wednesday.

Analysts expect the Fed to keep buying $85 billion a month in mortgage and Treasury bonds in to encourage investment and bolster a weak economic recovery.

"Overall, we expect the Fed to maintain its stance on asset purchases and forward guidance. At the press conference, we expect the chairman to continue to downplay the costs of asset purchases while highlighting the benefits," analysts at Barclays Capital wrote in a client note.

"With the Fed having shifted to unemployment rate-based guidance, the chairman's views on the overall labour market conditions, which take into account a broader set of indicators, would be parsed."

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