* Dollar hovers near five-week low vs basket of currencies
* Stronger yen hurts Tokyo's Nikkei, down 3 pct
* Asian shares edge higher
By Dominic Lau
TOKYO, July 26 (Reuters) - Tokyo shares tumbled on Friday on
the back of a stronger yen and the dollar languished at a
five-week low against a basket of currencies as investors waited
for clarity on U.S. stimulus at the Federal Reserve's policy
meeting next week.
European shares were expected to open higher, with London's
FTSE 100 seen up as much as 0.4 percent and Frankfurt's
DAX indicated up 0.7 percent, while the S&P 500 index
futures added 0.2 percent.
A Wall Street Journal report that the Fed may debate
changing its forward guidance to help ram home its message that
it will keep interest rates low for a long time to come put the
dollar on the back foot overnight.
But most economists and traders still expect the Fed could
start tapering its monetary stimulus in September.
The dollar eased 0.3 percent against a basket of
major currencies to be not far from a five-week low touched on
Against the yen, it was down 0.6 percent at a
two-week low of 98.615 yen. The euro was steady at
$1.32810, after gaining 0.6 percent overnight on the back of
positive economic reports from the euro zone.
Bank of America Merrill Lynch recommended investors to buy
the dollar index and sell bonds, however.
"As summer ends, Great Rotation leadership should resume,"
it wrote in a note.
"Significant monetary stimulus, the end of fiscal austerity,
a booming housing market and record corporate cash balances
should lead to a sharp pickup in the U.S. economy, which in turn
should be positive for the U.S. dollar and negative for bonds."
A gauge of planned U.S. business spending on capital goods
rose in June, while new claims for jobless benefits edged higher
last week but remained within a range that suggests the labour
market's recovery is on track.
JAPAN CPI RISES
The firmer yen weighed on Tokyo's Nikkei share average
, which sagged 3 percent to a more than two-week low in
relatively light trade and was down 3.2 percent for the week,
ending a five-week winning run and logging its worst weekly fall
since early June.
"We are seeing the yen strengthening," a Tokyo-based trader
said. "There is also the summer fatigue. People are going on
holiday and they are closing positions."
Japan's consumer prices rose in June for the first time in
more than a year, a positive sign for the government's battle
against deflation, but the rises centred on higher electricity
bills rather than stronger demand that could drive a durable
"The rise in the CPI is mainly due to the weaker yen, which
is raising import costs, so it's too early to be overly
optimistic. But we can say that 'Abenomics' is very much in
play," said Nobuhiko Kuramochi, strategist and economist at
Mizuho Securities in Tokyo.
In another negative sign, Japanese companies' one-month
earnings momentum slowed dramatically this month, to 1.1 percent
from 10.1 percent in June, according to Thomson Reuters I/B/E/S,
while that for MSCI Asia-Pacific ex-Japan index
deteriorated further to minus 7.1 percent from minus 5 percent.
ASIAN SHARES IN DEMAND
The MSCI Asia-Pacific ex-Japan index advanced 0.4 percent on
Friday, but China's CSI300 index slipped 0.3 percent.
Seoul shares were steady percent. Samsung
Electronics Co Ltd dropped 0.9 percent after its
April-June operating profit increased 47.5 percent to 9.5
trillion won ($8.5 billion), in line with its estimate.
In the commodity markets, Copper prices eased 0.5
percent to just below $7,000 a tonne. They had slipped 0.6
percent on Thursday, to snap a five-day winning run, on concerns
that a slowing Chinese economy may dent demand from the world's
Brent crude prices dipped 0.2 percent to around
$107.50 a barrel after gaining 0.4 percent overnight on the back
of the weaker dollar.
But gold added 0.4 percent, extending a 0.9 percent
rise in the previous session.