Asian shares ease to 4-week low on Fed tapering anxiety

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 fell 0.6 percent, adding to Wednesday's 1.1 percent decline, its sharpest one-day fall in three weeks.

In Tokyo, the benchmark Nikkei shed 1.1 percent, extending declines into a third day. Still, the index, powered by Tokyo's aggressive fiscal and monetary stimulus, has rallied nearly 48 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 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.

In September, the Fed had cited the possibility of a hit to the economy if lawmakers did not 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.

DOLLAR REBOUNDS

The dollar was up 0.2 percent at 102.67 yen, having fallen 0.4 percent overnight, easing for a second session after a recent strong run against the Japanese yen.

The euro took a pause after rising for a seventh straight session against the dollar on Wednesday on the back of higher money market rates and diminishing expectations of any imminent easing by the European Central Bank. The single currency dipped 0.1 percent to $1.37745.

Some analysts see little value in the euro after its recent strong run.

"We entered a short EUR/USD recommendation Wednesday, targeting a move down to 1.32 with our stop set at 1.3975," analysts at BNP Paribas wrote in a note.

"We think rate differentials are likely to move against the euro once again in the near-term and EUR/USD is trading rich to key drivers" according to their analysis, they added.

The Australian dollar reversed early losses to trade as high as $0.9083 after a surprisingly strong jobs report strengthened expectations the central bank was done cutting rates. It dropped 1.1 percent on Wednesday and was within sight of a three-month low of $0.8989 touched on Friday.

Among commodities, U.S. crude prices held steady at about $97.4 a barrel, pausing for breath having shed 1.1 percent the previous day after data showed large builds in refined oil products.

Gold was steady around $1,253 an ounce, stabilising after a 0.6 percent decline in the previous session. Gold is down 25 percent so far this year, on track for its worst yearly fall since 1981.