Asia shares up as yield hunt drives record flows, pound slips

By Wayne Cole

SYDNEY (Reuters) - Asian shares stood atop one-year peaks on Tuesday as a global search for yield drove a record inflow into emerging market funds, while the pound slipped to one-month lows on speculation of further policy easing in the UK.

Analysts at Bank of America Merrill Lynch noted the search for yield had led to the largest 5-week inflow on record to emerging market debt funds and the longest inflow streak to equity funds in two years.

MSCI's broadest index of Asia-Pacific shares outside Japan gained 0.1 percent, having already risen for three sessions in a row.

Japan's Nikkei enjoyed a fourth session of gains with a rise of 0.7 percent, while Shanghai put on 0.5 percent. European markets were expected to open slightly firmer, while E-mini futures for the S&P 500 were flat.

The major data out in Asia was Chinese inflation for July and it caused few ripples by coming in exactly as forecast at 1.8 percent. The tame result confirmed there was scope for further policy easing if needed.

The need for stimulus was clear in Chinese trade flows which disappointed in July amid slack demand both at home and abroad.

"Looking ahead, the launches of new electronic products may provide temporary support to export growth in the near term, but the overall outlook remains cloudy," wrote Jing Li, an economist at HSBC in a note.

"More importantly, weakening imports, which largely reflected the fragile nature of domestic demand, strengthens the call for more growth-supportive policies."

On Wall Street, the Dow ended Monday down 0.08 percent, while the S&P 500 lost 0.09 percent and the Nasdaq 0.15 percent. Befitting the minor moves, it was one of the year's slowest sessions.

STERLING SLIPPING

In currencies, the dollar consolidated the moderate gains made in the wake of Friday's upbeat U.S. payrolls report.

Against a basket of currencies, the dollar was a touch firmer at 96.573 and up from last week's trough of 95.003.

It edged ahead to 102.41 yen and away from the recent low of 100.65, while the euro dipped to $1.1077.

Futures markets now imply around a 54 percent chance of a Federal Reserve hike in December, though it was notable that a move was not fully priced in until October next year.

That outlook is in marked contrast to much of the rest of the world where stimulus is still very much in vogue. The UK and Australia both cut rates last week and New Zealand is widely expected to ease on Thursday.

Writing in an opinion piece for the Times on Tuesday, Ian McCafferty, a member of the Bank of England's policy setting committee, predicted yet further easing might be necessary.

That nudged the pound to its lowest in a month around $1.2979 and 1.1715 sterling per euro.

Oil prices gave back some ground on Tuesday, having rallied 3 percent overnight amid renewed speculation that OPEC would try to restrain output.

U.S. crude faded 33 cents to $42.69 per barrel, while Brent crude fell 35 cents to $45.04.

(Reporting by Wayne Cole; Editing by Kim Coghill and Simon Cameron-Moore)