Asian stocks slip as investors await Fed meeting

By Saikat Chatterjee

HONG KONG (Reuters) - Asian shares eased and the dollar firmed on Tuesday as investors, who welcomed Lawrence Summers ending his bid to lead the U.S. Federal Reserve, consolidated positions before a meeting at which the central bank is likely to start withdrawing stimulus.

While a trim of the Fed's massive bond purchases causes some apprehension, markets anticipate a much longer road to rate hikes after former Treasury Secretary Summers dropped out of the race to become its next chief.

European markets were seen taking a breather following Asia's lead, with futures for the Euro STOXX 50, Germany's DAX and France's down 0.1 to 0.3 percent. U.S. stock market futures edged 0.1 percent lower.

Despite a lacklustre August jobs report, the Fed is expected to reduce its monthly asset purchases by about $10 billion from $85 billion.

MSCI's broadest index of Asia-Pacific shares outside Japan fell 0.3 percent. Japan's Nikkei stock average, which opened higher after a holiday on Monday, changed gears and closed 0.7 percent down.

"It's a waiting game at the moment, but the FOMC decision may not necessarily be a bad thing," said Linus Yip, a strategist at First Shanghai Securities, referring to the Federal Open Market Committee, the Fed's policymaking arm.

"Tapering stimulus also means the U.S. economy is recovering, which I suspect some smart money has started to position for," Yip added.

Latest EPFR data seems to confirm that trend with European equity funds enjoying their second biggest inflow year-to-date in the week ending September 11, helped by investors' continued switch out of bonds and into stocks as the global economy recovers.

Underpinning investors' risk tolerance was easing tension in Syria after Russia and the U.S. reached a deal to remove Syrian President Bashar al Assad's chemical arsenal.

Investors switched out of better-performing markets in North Asia to hunt for bargains elsewhere as stock markets in Korea and China led regional declines even as India and Indonesia seem to have found their feet after a recent beating.

China's two main indexes were down more than 1 percent each.

HUNGRY FOR YIELD

The dollar index, which measures it against six major currencies, stood at 81.28, after having fallen to 80.968, its lowest since August 21, on Monday.

Latest UBS data on flows suggests that investors were reaching out for currencies from countries most likely to have rate hikes, such as the New Zealand dollar. That country's central bank signalled a hike in the second quarter of 2014.

The Australian dollar briefly shot higher after the Reserve Bank of Australia's minutes of its September 3 meeting signalled that a rate cut wasn't imminent, but then it slipped to be flat for the day.

Even as the U.S. dollar came under pressure after recent disappointing data, investors will be parsing the Fed's statement after this week's meeting for guidance on its future stance.

"On top of the size of tapering, what's more important this time is the Fed's forecast of interest rates in 2016, which will give markets an idea on the pace of future rate hikes," said Sho Aoyama, senior market analyst at Mizuho Securities.

Analysts say rate hike expectations hold the key because of their impact on short-term U.S. bond yields and thus the dollar's yield attraction.

On the commodities front, three-month copper on the London Metal Exchange fell 0.2 percent to $7,068 a tonne. It dropped to a five-week low of $7,024 a tonne on Friday, as investor appetite for risk improved on expectations of a diplomatic solution to the Syria crisis and the dollar fell.

Gold was down slightly at $1,313.06 an ounce.

Brent crude for delivery in November fell by 0.4 percent to $109.63 a barrel, moving further away from the six-month high of $117.34 a barrel in late August on worries about a possible U.S. military strike against Syria.

(Additional reporting by Hideyuki Sano in TOKYO and Clement Tan in HONG KONG; Editing by Richard Borsuk)