Asian shares edge down, but on track for weekly gains

By Lisa Twaronite and Wayne Cole

TOKYO/SYDNEY (Reuters) - Asian shares edged down on Friday but were on track for weekly gains, while the euro became more settled after the volatility seen in the wake of the European Central Bank's decision to trim the size of its asset purchase program while also extending it for longer than many analysts had expected.

MSCI's broadest index of Asia-Pacific shares outside Japan dipped 0.3 percent, and was poised for a weekly gain of 1.9 percent.

Japan's Nikkei stock index was up 1.3 percent in afternoon trading, up 3.1 percent for the week in which the dollar gained 0.9 percent against the yen.

It earlier topped the 19,000-level for the first time in a year, as investors saw both the weak yen and prospects of U.S. President-elect Donald Trump adopting pro-growth policies benefitting Japan's major exporters.

"The U.S. market's strength is giving a boost to Japanese shares," said Eiji Kinouchi, chief technical analyst at Daiwa Securities.

Major U.S. stock indexes climbed again on Thursday and set fresh record highs as Wall Street continued its month-long rally following Trump's election.

The dollar was up 0.4 percent at 114.45 yen, moving back toward last week's 10-month high of 114.83 yen.

The euro inched down 0.1 percent at $1.0615. It spiked as high $1.0875 before collapsing when markets realised the ECB's actions were actually very dovish.

The ECB said it would reduce its monthly asset buys to 60 billion euros ($63.68 billion) as of April, from the current 80 billion euros, and extend purchases to December from March - three months longer than what some analysts had forecast.

That dragged down two-year yields across Europe and sharply steepened the yield curve, a gift for banks that typically borrow short maturities and lend long.

The promise of lower rates for longer was taken as a green light for carry trades, where investors borrow euros at cheap rates to invest in higher yielding currencies.

ECB President Mario Draghi said the unexpected move was not an outright winding-down of the central bank's quantitative easing (QE) program, and the central bank reserved the right to increase the size of purchases again if the eurozone economy falters.

The ECB's bond purchase changes came less than a week before the Federal Reserve's policy meeting next Tuesday and Wednesday.

Interest rate futures, implied traders saw a 98 percent chance the U.S. central bank would raise interest rates by a quarter point next week, and about a 50 percent chance it would raise rates by at least another quarter point by June 2017, according to CME Group's FedWatch program.

"We're at a point in time between big announcements from a couple of the big central banks after the ECB, and looking forward to Fed next week, so the current momentum underway seems to be the path of least resistance at this point in time," said Bill Northey, chief investment officer of the private client group at U.S. Bank in Helena, Montana.

"We've come a long way, and I wouldn't expect us to keep the same pace, but the trajectory might be correct" for dollar strength, he said.

The dollar index, which tracks the greenback against a basket of six major rival currencies, added 0.1 percent to 101.18, up 0.4 percent for the week.

Oil held most of its gains after rebounding overnight on growing optimism that non-OPEC producers might follow the cartel's lead by agreeing to cut output. [O/R]

U.S. crude added 0.1 percent to $50.90 a barrel. Brent crude edged down 0.1 percent to $53.83.

Spot gold was down 0.3 percent at $1,167.38 an ounce and was set for a weekly decline of about 0.8 percent, pressured by the stronger U.S. dollar and expectations that the Fed will raise interest rates next week.

($1 = 0.9422 euros)

(Additional reporting by Ayai Tomisawa in Tokyo; Editing by Simon Cameron-Moore)