Asian shares steady as Q1 ends, eyes on Europe, China

Asian shares steadied on Friday as investors eyed key events that could dictate market trends in coming months, and as the first quarter drew to a close after a stellar performance from equities.

MSCI's broadest index of Asia Pacific shares outside Japan inched up 0.1%, in positive territory after a two-day decline, but still off a one-week high hit earlier this week.

The index is set for a quarterly gain of about 11% at current levels, the best showing since the third quarter of 2010 and the best first quarter in 21 years.

Japan's Nikkei average opened down 0.3%, retreating from Thursday's one-year high, but is up more than 19% and set for its best first quarter in 24 years.

Still, investor sentiment across asset classes is being undermined by fears of a potential growth slowdown, with European troubles back in focus and concerns about China, the world's second largest economy.

European Union economic and financial affairs ministers meeting in Copenhagen on Friday and Saturday are due to finalise a financial firewall that should help the euro zone's highly indebted economies, such as Italy and Spain, but there is discord about the size of the rescue fund.

German Finance Minister Wolfgang Schaeuble said on Thursday the bloc should not commit more than 800 billion euros in rescue aid, and that money should only be available when countries promise reforms.

"Europe is the biggest risk factor in the second quarter, with elections in Greece and France potentially fuelling doubts about commitments to fiscal reforms if those opposed to austeriy measures win," said Daisuke Karakama, market economist for Mizuho Corporate Bank in Tokyo.

"Failure to ratify a permanent bailout fund before its scheduled launch in July could rattle financial markets," he said.

With financial markets starting to price in concerns about a slowdown in China, official China manufacturing PMI for March due on Sunday presents the next risk to assets with close links to Chinese growth, such as the Australian dollar, analysts at Barclays Capital said.

Euro weigh

Concerns about slow progress in debt-cutting efforts in the euro zone's large and indebted countries undermined the euro, which touched $1.3251 on Thursday, its lowest level in three sessions. The single currency last stood at $1.3310.

Italian and Spanish yields rose on Thursday as investors switched into low-risk German debt.

As risk aversion trades return, the structure of currency flows into Europe is undergoing significant changes, Morgan Stanley said in a research note.

"The composition of inflows, shifting away from long-term capital towards short-dated funds, has increased the vulnerability of the EUR in our view," it said.

For the dollar, which during the first quarter outperformed other currencies on brightening prospects for the US economy, it said: "Real rate differentials play the decisive role. The US economy is still highly leveraged, limiting real yield upside potential."

US stocks fell after data on Thursday showed new US claims for jobless benefits fell only slightly last week, missing forecasts for a greater decline, while the prior week's number was revised up. But stocks later pared losses as investors looked to details. Initial claims for state unemployment benefits fell 5,000 to a seasonally adjusted 359,000, the lowest level since April 2008.

Another report showed US gross domestic product expanded 3% in the fourth quarter as expected.

Oil prices fell for a third straight session, after growing talk of a release of strategic petroleum reserves (SPR) by consumer nations spurred profit-taking.

Brent crude fell $1.77 to settle at $122.39 a barrel. US crude futures inched up 0.5% to $103.32 a barrel on Friday after losing $2.63 the day before.

Asian credit markets were weak, with the spread on the iTraxx Asia ex-Japan investment-grade index wider by 5 basis points early on Friday.