Fed stimulus jitters, volatile Nikkei weigh on Asian shares

 Asian shares eased on Thursday as growing uncertainty on whether the US Federal Reserve would roll back its stimulus this year kept markets on edge, while choppy Japanese equities put pressure on the dollar against the yen.

 

Japan's Nikkei stock average opened down 0.7% after skidding 3.8% to a two-month low on Wednesday, extending a selloff that began on May 23. Morning trade mirrored recent volatility in the market, which was last flat.

 

The slide in Tokyo shares on Wednesday was sparked by disappointment that Prime Minister Shinzo Abe's latest tranche of measures to revive the world's third-biggest economy had dodged some of the tough issues.

 

"Japanese stocks look set to remain highly volatile, undermining sentiment in broader markets, and it may take a bit of time before players come to realise the Nikkei's recent plunge may actually be providing a bargain opportunity," said

 

Yuji Saito, director of foreign exchange at Credit Agricole in Tokyo.

 

Wednesday's set of US data suggested the country's labour conditions may not yet prompt the Fed to trim the current massive bond-buying programme, but markets remained nervous ahead of a more important monthly payrolls report due on Friday.

 

The dollar was down 0.1% against the yen at 99.02, after suffering a one-% fall overnight. The dollar index, measured against a basket of six key currencies, was down 0.02%, hovering near Monday's three-week low of 82.428.

 

"The dollar's longer-term bullish outlook remains intact as the Fed will eventually start scaling down its stimulus if jobs continue to be added, while the Bank of Japan will expand its monetary base. Current market sentiment is very bearish, but it's hard to see a sharper dollar selling from here," Agricole's Saito said.

 

MSCI's broadest index of Asia-Pacific shares outside Japan inched down 0.1%, after sliding 1.1% to a six-month low the day before. It had just snapped a four-day losing streak on Tuesday.

 

Australian shares were 0.2 % lower, tracking a fall on Wall Street overnight, after touching a 4-1/2-month low on Wednesday.

 

On Wednesday, US Treasuries prices rose as weak economic data spurred safe-haven bids while stocks fell.

 

A report by payrolls processor ADP showed US private employers added 135,000 jobs in May, less than the 165,000 expected, while the Fed's Beige Book showed also provided a sober reading on hiring. Service-sector data from the Institute for Supply Management also showed employment in that part of the economy grew at its lowest rate in nearly a year in May.

 

The data have sharpened the markets' focus on Friday's payrolls report as the US central bank has made an improving jobs situation a precondition for softening its strong stimulus measures.

 

"We think the Fed's recent statements are simply reminding the market what we already know about its current reaction function: i.e., to the extent that the economic picture is better, tapering will come earlier," Goldman Sachs said in a research.

 

"The Fed may be comfortable with the idea that this reminder encourages investors to consider the possibility of higher rates more explicitly again, but we doubt there is much desire to tighten financial conditions," Goldman added.

 

European shares dropped to six-week lows on Wednesday after data indicated business activity in the euro zone eased in May and retail sales in April pointed to weak consumer demand.

 

The data kept pressure on the European Central Bank to do more to stimulate growth, but was not seen as changing the prevailing view that the bank will leave monetary policy unchanged after its meeting on Thursday.

 

US crude futures held steady around $93.73 a barrel.