Asian shares fall as sentiment wavers on liquidation talk, Fed

By Chikako Mogi

TOKYO (Reuters) - Asian shares fell and the Australian dollar eased on Thursday as risk sentiment was shaken by talk in global markets overnight that a hedge fund had been liquidating large positions in commodities, as well as worries the Federal Reserve could slow its bond buying programme.

Crude oil posted its biggest daily fall so far this year on Wednesday, while gold fell nearly 3 percent to a seven-month low in its biggest single-day drop in almost a year, on the market rumours that the hedge fund was forced to liquidate substantial commodity positions.

The CBOE Volatility Index, which gauges investor risk appetite on Wall Street, rose 19 percent to 14.68 in the biggest jump this year.

Traders said the selling in broad markets coincided with the release of the minutes from the Fed's January 29-30 meeting, which showed policymakers discussed the slowing or stopping of Fed bond purchases aimed at reducing unemployment.

We all heard the hedge fund rumour and price action appeared to back such a rumour, but nobody has seen hard news,"

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

"The price action also happened at the same time as the Fed's minutes which suggested the risk of an exit (from the quantitative easing), so it's natural that money which had fled the dollar was returning, such as from gold. I think the fallout from the Fed's minutes will continue this session, prompting some money to head towards the dollar," Saito said.

The MSCI's broadest index of Asia-Pacific shares outside Japan fell 0.5 percent, snapping a three-day rising streak and off its highest levels since August 2011 reached on Wednesday.

Resources-reliant Australian shares fell 0.8 percent, pulled down by weakness in the mining sector after gold, equities and resource-linked currencies were all knocked lower the day before. The Australian stock market hit a 4-1/2-year high on Wednesday.

The Australian dollar was down 0.1 percent to $1.0244 after sliding 1 percent to $1.0245.

South Korean shares opened down 0.5 percent after hitting a one-month high the day before while Tokyo's Nikkei stock average opened 0.6 percent lower, after closing on Wednesday at its highest since late September 2008.

European shares fell on Wednesday as surprise dividend cuts by RSA and Lufthansa and weak results from the likes of Accor and BHP Billiton weighed on sentiment.

MSCI's all-country world equity index rose to its highest level since June 2008 on Wednesday, before retreating to trade down 0.7 percent after the Fed's minutes.

"A number of participants stated that an ongoing evaluation of the efficacy, costs and risks of asset purchases might well lead the committee to taper or end its purchases before it judged that a substantial improvement in the outlook for the labor market had occurred," the minutes said.

The Fed's bond buying has played a significant role in calming markets by ensuring the central bank will keep its ultra-accommodative stance until growth is solid.

"We wouldn't leap to conclusions over the trajectory of QE4 (quantitative easing), which Fed officials in recent days have suggested would likely be sustained at least into H2 13. But it raises the stakes for Fed chairman Bernanke's semi-annual testimony on Tuesday (February 26)," said Sean Callow, a senior currency strategist at Westpac, in a note to clients.

The dollar rose 0.1 percent to 93.66 yen while the euro eased 0.1 percent to $1.3270, hovering near its lowest since January 23.

U.S. crude fell 0.6 percent to $94.62 a barrel.

Spot gold was up 0.5 percent to $1,569.14 an ounce.