Asian shares ease on weak U.S. data, North Korea eyed

By Chikako Mogi

TOKYO (Reuters) - Investors nervously watched developments in the Korean Peninsula on Thursday while Asian stocks fell after weak data stoked concerns the key American jobs report due later in the week will signal slowing U.S. growth.

Japanese shares slipped while the yen held firm against the dollar as investors awaited the outcome of the Bank of Japan's two-day policy meeting this session.

The dollar recovered against a basket of major currencies to inch up 0.1 percent and also rose against the Korean won, although the dollar's rise sent spot gold to a 10-month low of $1,542.24 an ounce.

The MSCI's broadest index of Asia-Pacific shares outside Japan was down 0.6 percent, dragged down by a 2 percent slump in South Korean shares, while the South Korean won slid 0.7 percent against the U.S. dollar.

North Korea barred entry to a joint industrial complex it shares with the South for a second day on Thursday, telling the association of companies that operate factories in the Kaesong industrial zone to complete pulling out by April 10.

The United States said on Wednesday it would soon send a missile defense system to Guam to defend it from North Korea, as the U.S. military adjusts to what Defense Secretary Chuck Hagel has called a "real and clear" danger from Pyongyang.

The pull-back in Asian equities followed an overnight sell-off in global stocks, with the Standard & Poor's 500 Index posting its biggest daily drop in over a month, after a report showing weaker-than-expected U.S. private sector hiring in March, and a services sector index missing forecasts, raised concerns about the U.S. economy.

"Markets at this point look increasingly top-heavy, even if the downside still seems anchored by reasonable earnings outlook in the region," said Hirokazu Yuihama, a senior strategist at Daiwa Securities in Tokyo.

"Asian bourses are coming under pressure from growing uncertainty in Chinese property markets, worries about the euro zone and the U.S. economy. North Korea's seemingly hardening stance added to the already weakened sentiment, but as long as there is no actual military confrontation, the Korean factor may be temporary," Yuihama said.

Australian shares slid 0.7 percent, with volatile commodities hitting prices.

Japan's Nikkei stock average retreated 1.8 percent, after soaring 3 percent on Wednesday for its biggest one-day rise in two months, as investors awaited the BOJ's policy decision, the first under the new governor Haruhiko Kuroda.

"Only the truly brave can feel confident trading into the BOJ event," Sebastien Galy, currency strategist, at Societe Generale, said in a note to clients. "Risks of a more global position-squeeze are rising, but are lacking an economic or geopolitical trigger. Markets have so far shrugged off the risks (of North Korea), but that could change if the escalation morphed into military action, however restricted initially."

The dollar was down 0.1 percent against the yen at 93, staying close to a one-month low of 92.57 yen touched on Tuesday. The euro fell 0.1 percent to 119.45 yen, holding near its lowest since February 26 of 119.15 yen seen on Tuesday.

Market expectations have been running high for Kuroda to announce at his inaugural policy meeting an increase in bond purchases and a lengthening in the maturities of bonds the BOJ intends to buy.

Hopes for stronger BOJ stimulus had led to a yen weakness since Prime Minister Shinzo Abe's reflationary policy agenda became clear in November, sending the yen down against the dollar about 16 percent between then and year-end, and 7.2 percent lower so far this year.

A weak yen helped underpin the Nikkei, which rose about 37 percent since mid-November and 19 percent higher so far in 2013.

An accumulation of yen short positions has cautioned some yen bears in recent days.

In the options market, three-month risk reversals, a gauge of currency market sentiment, showed options investors are biased to puts -- the right to sell dollars at a set price on a future date.

The dollar has also been undermined by falling bond yields on uncertainty over the U.S. growth. The benchmark 10-year Treasury yield touched to a three-month low of around 1.81 percent on Wednesday.

The European Central Bank is expected to hold interest rates on Thursday but could provide a dovish outlook on interest rates.

The Bank of England, which also meets later on Thursday, is unlikely to pump new money into Britain's stagnant economy.

Oil futures recovered from sharp losses the day before, with U.S. crude holding around $94.40 a barrel and Brent adding 0.2 percent to $107.27.

Oil prices fell 3 percent on Wednesday in the steepest daily drop in five months, as U.S. crude inventories rose to their highest since 1990 and weak economic data clouded the outlook for demand.

(Editing by Eric Meijer)