Asian stocks on edge before Comey, ECB and UK election

By Hideyuki Sano

TOKYO (Reuters) - Asian shares wobbled on Thursday as investors braced for any surprises from the UK elections, the European Central Bank's policy meeting and congressional testimony from ex-FBI director James Comey who was fired by President Donald Trump last month.

MSCI's broadest index of Asia-Pacific shares outside Japan was down 0.1 percent while Japan's Nikkei was flat.

Wall Street shares ticked up on Wednesday, despite sharp decline in energy prices, after written testimony from Comey did not add major revelations about an investigation into Russian meddling with last year's U.S. presidential election.

The British pound held firm at $1.2957, near its highest levels in two weeks, supported in part by polls showing Prime Minister Theresa May is on course to increase her majority in parliament.

The pound gained as much as 4 percent after May called a snap election seven weeks ago, as polls had initially suggested a landslide win for her Conservative party that would give the prime minister a stronger hand in Britain's negotiations on leaving the European Union.

Yet traders are cautious given the Brexit shock last year and as her once-commanding lead over the Labour Party and its veteran hard-left leader Jeremy Corbyn has been narrowing through the campaign period.

"If the conservatives win big, that will lead to a big relief in markets and buy-back in the pound. But if the they win only a wafer-thin majority or even lose an outright majority, that will be a major negative surprise," said Shuji Shirota, head of macro economist strategy at HSBC in Tokyo.

To see Reuters interactive graphic on the election- polls and results, click on http://tmsnrt.rs/2q7tC48

Ahead of the UK vote results, the European Central Bank will hold its policy meeting in the Estonian capital of Tallinn, with the policy announcement due at 1145 GMT, followed by President Mario Draghi's news conference at 1230 GMT.

With no policy change expected, market players are focusing on how the central bank may alter its economic assessment and policy guidance in light of a strengthening euro zone economy.

ECB policymakers are set to take a more benign view of the economy and will even discuss dropping some of their pledges to ramp up stimulus if needed, sources with direct knowledge of the discussions have told Reuters.

Still many market players expect the ECB to wait until September before signalling further tapering in its bond buying.

The euro traded at $1.1258, near its seven-month high of $1.1285 touched earlier this month.

The dollar stayed near its seven-month low against a basket of currencies as doubts over Trump's ability to push through his stimulus plans have eroded the greenback's gains made late last year.

The dollar index stood at 96.713, near Wednesday's seven-month low of 96.511. Against the yen, the U.S. currency bounced back a tad to 109.74 yen from Wednesday's 1-1/2-month low of 109.115.

The 10-year U.S. Treasuries yield stood at 2.178 percent after having fallen to a seven-month low of 2.129 percent on Tuesday.

Many investors are wary ahead of Comey's Senate appearance later in the day for any hints Trump may have been engaged in obstruction of justice - an offence that could lead to impeachment hearings.

"If the hearing does not produce clear-cut evidences of obstruction of justice, uncertainties will remain but for market the issue will likely be put on a back burner," said Hiroko Iwaki, senior fixed income strategist at Mizuho Securities.

"Unless you assume there will be a complete chaos in U.S. politics or a downturn in the U.S. economy, it is hard to see further falls in U.S. bond yields," she said.

Oil prices licked wounds after sharp falls on Wednesday to a one-month low, following an unexpected increase in U.S. inventories of crude and gasoline that fanned fears that output cuts by major world oil producers have not done much to drain a global glut.

Brent crude futures traded at $48.31 per barrel, up 0.5 percent so far on Thursday, though they had fallen 4.1 percent the previous day.

(Editing by Shri Navaratnam)