Asian shares edge up, dollar steadies after drop

By Lisa Twaronite

TOKYO (Reuters) - Asian shares tentatively rose in early trade on Tuesday, while the dollar steadied after investors locked in some gains overnight on its recent rally.

MSCI's broadest index of Asia-Pacific shares outside Japan was up 0.2 percent in early trade, shrugging off a choppy, losing session on Wall Street overnight.

Japan's Nikkei stock average dropped 0.3 percent ahead of the outcome of the Bank of Japan's policy meeting later in the session.

The BOJ is widely expected to maintain its massive monetary stimulus programme and offer a bleaker view on factory output, after signs Japan's economy was hit harder than expected by a national sales tax increase in April.

"We expect the BOJ to keep monetary policy on hold, but it could lower its economic assessment to reflect continuing data weakness" since the tax hike, strategists at Barclays said in a note to clients.

Against the yen, the dollar edged up about 0.1 percent to 108.91 yen, pulling away from an overnight low of 108.65 but still well shy of a six-year peak of 110.09 yen marked last week.

The euro inched down 0.1 percent on the day to $1.2645 but held well above a more than two-year low of $1.2501 set on Friday, after the U.S. non-farm payrolls report fuelled speculation that the Federal Reserve will hike interest rates by mid-2015.

Investors had a muted reaction to Monday's disappointing report on German industrial orders, which fell 5.7 percent in August to mark their biggest monthly drop since 2009.

The dollar index, which tracks the greenback against six major currencies, slipped 0.2 percent to 85.795 after marking its biggest one-day fall since July 2013. The index rose to a four-year high of 86.746 on Friday, and logged a record 12 straight weeks of gains in which it rose about 7.7 percent.

The Australian dollar added about 0.1 percent to $0.8766, pulling away from Friday's low of $0.8642 which was its lowest level since July 2010.

Investors will be watching to see if the Reserve Bank of Australia tries to talk its currency even lower at its regular policy review on Tuesday, at which it is widely expected to hold its cash rate steady at 2.5 percent. The RBA will announce its decision at 0330 GMT.

The dollar's overnight weakness helped put a floor under recently slumping crude prices. Brent was steady on the day at $92.78 a barrel.

Gold also steadied at $1,205.90 an ounce. In a volatile session on Monday, it marked its biggest one-day gain in two months, after first bumping to a 15-month low.

(Editing by Eric Meijer)