Asian shares dip to 4-week low on Fed tapering worry

Reuters - Asian shares slipped to a four-week low on Thursday on heightened expectations the Federal Reserve may act sooner than later to unwind its stimulus after a provisional budget deal in Washington eased some of the fiscal drag on the U.S. economy.

MSCI's broadest index of Asia-Pacific shares outside Japan eased 0.1 percent, adding to Wednesday's 1.1 percent decline.

In Tokyo, Nikkei futures shed 1.2 percent, indicating the benchmark Nikkei is set to fall for a third day in a row. Still, the index, powered by Tokyo's aggressive fiscal and monetary stimulus, has rallied 49 percent so far this year, on track for its best yearly gain since 1972.

Overnight, U.S. stocks posted their biggest drop in a month, with the Standard & Poor's 500 down 1.1 percent, as traders locked in recent gains after Congress announced the provisional budget deal. S&P 500 E-mini futures inched up 0.1 percent in early Asian trade on Thursday.

The bipartisan budget agreement reached late on Tuesday, though modest in spending cuts, would end three years of political squabbling in Washington that climaxed in October with a two-week partial government shutdown. The U.S. House of Representatives could vote on the deal on Friday.

Last September, the Fed cited the possibility of a hit to the economy if lawmakers didn't agree on a budget as one reason to keep its $85 billion-a-month bond-buying campaign.

"Following Friday's employment report, we noted that the odds of tapering at the January FOMC meeting (vs. March) had shifted from less than even to roughly even," Societe Generale said in a note.

"In light of the budget deal agreed by Congressional dealers in recent days, the odds have shifted further and we now see the January meeting as the most likely timeframe."

Market participants will also be keeping an eye out for the possibility of a surprise move by the Fed next week at its final policy meeting for 2013 on Dec. 17 and 18.

EURO TAKES A BREATHER

The dollar was steady at 102.475 yen after falling 0.4 percent overnight, easing for a second session after a recent strong run against the Japanese yen.

The euro also held steady, at $1.37865, having risen for a seventh straight session against the dollar on the back of higher money market rates and diminishing expectations of any imminent easing by the European Central Bank.

Ahead of Australian employment data, the Aussie dollar edged down 0.1 percent to $0.9036, extending Wednesday's 1.1 percent drop and within sight of a three-month low of $0.8989 touched on Friday.

"Employment is always a key focus for the Reserve Bank of Australia and therefore today's jobs data could be the catalyst for new volatility in the AUD," said Stan Shamu, market strategist at financial spreadbetter IG in Melbourne.

Among commodities, U.S. crude prices added 0.2 percent to about $97.50 a barrel, recouping some of Wednesday's 1.1 percent tumble after data showed large builds in refined oil products.

Gold was steady at around $1,252 an ounce, pausing after a 0.6 percent decline in the previous session.