Asian shares retreat on dim growth outlook, Fed stimulus

MSCI's broadest index of Asia-Pacific shares outside Japan fell 0.5%, Nikkei down 1.2%

Asian shares retreated from a two-week high on Friday on scaled back expectations of more stimulus from the U.S. Federal Reserve and growth concerns after manufacturing surveys from the euro zone and China depicted a bleak outlook.

But the euro was underpinned by sustained hopes of European Central Bank's action to rein in surging sovereign debt yields in Spain and Italy, as well as a report saying Spain is negotiating with euro zone partners over conditions for aid to drive down its borrowing costs.

MSCI's broadest index of Asia-Pacific shares outside Japan fell 0.5 percent after gaining as much as 1 percent to a two-week high the day before.

Japan's Nikkei stock average opened down 1.2 percent.

"I think the Nikkei's uptrend is still in place but unless we have additional positive factors, there will be profit-taking after recent gains," said Toshiyuki Kanayama, market analyst at Monex Securities.

South Korean stocks were also seen undergoing a technical correction, tracking global shares.

"Expectations for fresh stimulus action have been largely reflected in shares, so shares will continue to take a breather next week," said Kim Young-joon, an analyst at SK Securities.

A global market rally, spurred by the minutes of the Fed's July 31-August 1 meeting released on Wednesday which indicated the Fed might be ready for another round of monetary stimulus, stalled after such expectations fizzled out.

U.S. stocks eased as James Bullard, president of the Federal Reserve Bank of St. Louis, a non-voting member of the Fed, told CNBC television that U.S. data has been somewhat better since then and the minutes were "a bit stale."

European stocks fell on global growth concerns on Thursday after business surveys in China and the euro zone showed the world economy was slowing down, while U.S. manufacturing activity improved slightly in August even when weekly jobless claims unexpectedly ticked higher last week.

A Reuters poll showed on Friday big Japanese manufacturers' sentiment worsened in August and is expected to improve only slightly in the coming months, as Europe's debt crisis, a global slowdown and a stubbornly strong yen take their toll on the export-reliant economy.

While the outlook for U.S. monetary policy remains unclear, the ECB earlier this month indicated it may resume buying government bonds to calm euro zone debt markets, and investors have been building up hopes the bank will soon provide details of its bond-buying scheme, as early as at its September 6 meeting.

"The bottom line for us is that there are enough clear signs to tell us we should be primed for major developments from the ECB in the months ahead," said Westpac Institutional Bank in a note.

The euro traded at $1.2558, near a seven-week high of $1.2590 hit on Thursday. The dollar inched up 0.1 percent to 78.57 yen.

Europe full plate

European leaders, returning from their summer vacation, have resumed negotiations over aid to troubled Greece and Spain.

Three sources with knowledge of the matter told Reuters on Thursday that Spain is in talks over possible aid, although the country has not made a final decision to request a bailout, and no specific figure for aid has been discussed.

Germany and France kept pressures high on Greece on Thursday, telling Athens it should not expect leeway on its bailout agreement unless it sticks to tough reform targets. Leaders of Germany and Greece meet later on Friday.

With talks ongoing in an attempt to resolve the euro zone's three-year debt crisis, Morgan Stanley said it remained bullish on risky assets and was selling currencies that benefited from safe-havens through early summer, mainly against the Euro.

It is bearish on the yen, one such safe-haven currency.

"Amid rallying asset prices, investors seeing better risk/reward ratios in higher yielding currencies will reallocate portfolios away from the JPY, in our view," it said.

Asian credit spreads weakened with the retreat in shares, sending the spread on the iTraxx Asia ex-Japan investment-grade index wider by 2 basis points.

Spot gold stood at $1,668 an ounce, off its four-month high of $1,674.80 hit on Thursday.

Oil eased, with U.S. crude down 0.4 percent to $95.90 a barrel and Brent falling 0.3 percent to $114.66.