GLOBAL MARKETS-Dollar languishes at 5-wk low as Fed eyed, Japanese shares tumble

Last Updated: Fri, Jul 26, 2013 06:30 hrs

* 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 Thursday.

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.


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 recovery.

"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.


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 top consumer.

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.

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