GLOBAL MARKETS-Dollar supported by Fed comments, Nikkei eases

Last Updated: Fri, May 17, 2013 01:30 hrs

* Dollar index up from previous day's lows

* San Francisco Fed's Williams says Fed may end QE this year

* MSCI Asia Pacific ex-Japan steady, Japan's Nikkei slips

By Masayuki Kitano

SINGAPORE, May 17 (Reuters) - Japanese shares slipped and Asian equities were broadly steady on Friday after a U.S. Federal Reserve official said the central bank may begin to taper its asset buying this summer, lending support to the dollar.

U.S. equities sagged on Thursday after John Williams, president of the Federal Reserve Bank of San Francisco, said the Fed could begin easing back on the monetary gas pedal this summer and end bond buying late this year.

Although Williams does not have a vote in the Fed's policy-setting panel this year, his comments spooked investors, since the Fed's purchases of $85 billion a month in bonds has been significant driver of the rally in equities that has taken U.S. stock indexes to record highs this year.

The dollar gained on Williams's comments. Against a basket of currencies, the dollar index last stood at 83.766, up from Thursday's low of 83.448 and holding within sight of a 10-month peak of 84.094 set earlier this week.

"At the previous policy meeting, the Fed essentially said whether it will reduce or expand its bond buying is 50-50. But markets are now suspicious that Bernanke may signal it's something like 55-45 when he testifies in the congress on May 22," said Minori Uchida, chief FX analyst at the Bank of Tokyo-Mitsubishi UFJ in Tokyo.

Federal Reserve Chairman Ben Bernanke is due to testify on the economy before the congressional Joint Economic Committee on May 22.

In equities, Japan's benchmark Nikkei share average eased 0.2 percent, after opening down 0.7 percent as Japanese shares ran into some profit-taking after their recent rally.

The initial retreat in Tokyo shares came even as Japanese core machinery orders surged a much bigger-than-expected 14.2 percent in March. Taking some of the shine off that data, which is known for being volatile, was the fact that core machinery orders were expected to fall 1.5 percent in April-June quarter-on-quarter.

"The forecasts for April-June underlined companies' cautiousness about capital spending due to uncertainty over the global economic outlook, including weak data from China and patchy indicators from the United States," said Shuichi Obata, senior economist for Nomura Securities in Tokyo.

MSCI's broadest index of Asia-Pacific shares outside Japan was little changed at 480.79, and down from last week's peak of 491.17, its highest level since July 2011.

U.S. crude futures slipped to about $95 a barrel after disappointing U.S. economic data revived worries over demand in the world's biggest oil consumer.

Factory activity contracted in the mid-Atlantic region in May, ground-breaking for new homes tumbled in April and new claims for jobless benefits spiked last week, according to three separate reports.

Coupled with soft underlying inflation, the data suggested weak demand as the U.S. economy entered the second quarter.

Markets in Hong Kong and South Korea are closed on Friday for holidays.

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