Asian shares held back by weak Japan GDP, US fiscal cliff

Last Updated: Mon, Nov 12, 2012 06:30 hrs

By Chikako Mogi

TOKYO (Reuters) - Asian shares were capped on Monday as investors' concerns about the fiscal crisis in the United States and Greece's bailout programme dented optimism over the growth prospects of the world's two largest economies, the United States and China.

Adding to the uncertainty, Japan reported that its economy shrank 0.9 percent in July-September from the previous quarter, the first contraction in three quarters, suggesting faltering global demand and weak consumer spending may push the world's third-largest economy into a mild recession.

India's industrial output undershot forecasts in September.

MSCI's broadest index of Asia-Pacific shares outside Japan was up 0.1 percent after ending last week down 0.7 percent at a one-week low. Energy and materials underperformed, weighing on resources-reliant Australian shares which eased 0.3 percent.

South Korean shares were off 0.2 percent and Sensex slipped into negative territory while Southeast Asian stocks were mixed. Hong Kong shares were up 0.1 percent but Shanghai equities fell 0.2 percent.

Japan's Nikkei stock average fell 0.8 percent to a four-week low.

"Investors remain consumed by U.S. fiscal cliff consequences, and this is capping market enthusiasm with such a significant obstacle remaining in the path of financial markets," Tim Waterer, senior trader at CMC Markets said.

A 0.1 percent rise in U.S. stock futures suggested a firm Wall Street open, but European shares will be mixed, with financial spreadbetters expecting London's FTSE 100, Paris's CAC-40 and Frankfurt's DAX o open between up 0.1 percent and down 0.1 percent.

President Barack Obama on Friday invited congressional leaders to the White House, kicking off negotiations to avoid the "fiscal cliff" by finding a compromise to cut the U.S. deficit before nearly $600 billion worth of spending cuts and tax increases kick in early 2013.

Analysts say the fiscal cliff could derail the U.S. economy, which has shown signs of a modest recovery.

Markets are also eyeing the debt ceiling, which needs to be raised to avoid a government shutdown.

Commodities were mixed, with U.S. crude inched up 0.1 percent to $86.12 a barrel while Brent fell 0.2 percent to $109.23. Gold was up 0.2 percent to $1,734.20 an ounce and London copper rose 0.1 percent to $7,580 a tonne.

"Commodities in general will be weighed down as November and December mark the bookclosing season for hedge funds," said Naohiro Niimura, a partner at research and consulting firm Market Risk Advisory.

Base metals such as copper face limited upside as improving Chinese data means less need for further stimulus while the timing of expected infrastructure spending is unclear, he said.

"Since these public spendings will likely come from bank loans, sluggish loan data suggests investment may not have begun," Niimura said.

Data on Monday showed Chinese banks extended 505.2 billion yuan of new local currency loans in October, below market expectations of 600 billion yuan.


The dollar steadied against the yen at 79.48, hovering near Friday's three-week low of 79.07 yen.

The euro inched up 0.2 percent to $1.2730, off a two-month low against the dollar of $1.2690 touched on Friday. The euro inched up after Greece on Sunday won a parliamentary approval for the 2013 budget law, vital for reviving its stalled international aid and avoid insolvency.

But euro zone finance ministers were unlikely to release a new tranche of loans to Greece at their meeting on Monday.

"Worries about Greece still remain, but at least some uncertainties have been removed, so we are unlikely to see a big euro selloff," said Masashi Murata, senior currency strategist at Brown Brothers Harriman in Tokyo.

U.S. September wholesale inventories and sales, as well as November consumer sentiment rose while China's trade surplus ballooned to its biggest in 45 months in October, reinforcing other indicators that have suggested the need for new economic stimulus measures had become less urgent.

China is also taking steps which may affect global capital flows. It plans to boost foreign investment in mainland stock and bond markets by raising quotas for the Renminbi Qualified Foreign Institutional Investor scheme, which allows approved investors to channel offshore yuan funds into mainland markets.

It also eyes raising the quotas for the Qualified Foreign Institutional Investor scheme, the original, dollar-denominated programme that allows institutional investors to buy stakes in Chinese-listed stocks or bonds.

For outside investment, the sovereign wealth fund China Investment Corporation said it will focus more of its $482 billion firepower on Asia.

Sentiment steadied in Asian credit markets, with the spread on the iTraxx Asia ex-Japan investment-grade index barely moved from Friday.

(Additional reporting by Narayanan Somasundaram in Sydney and Lisa Twaronite in Tokyo; Editing by Sanjeev Miglani)

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