Japanese stocks outperform, crude extends losses

By Lisa Twaronite

TOKYO (Reuters) - Japanese shares stood out against a lacklustre backdrop in Asia on Tuesday as oil prices continued to drop, while the dollar took a breather from its recent rally.

MSCI's broadest index of Asia-Pacific shares outside Japan erased early losses and eked out a 0.1 percent gain, while Japan's Nikkei stock average added 0.8 percent.

Sentiment was also boosted by the Bank Of Japan's move on Monday to purchase 38 billion yen ($331.2 million) of exchange-traded funds (ETFs), as part of its recently beefed-up economic stimulus campaign. The news was announced after markets closed on Monday.

"The central bank's purchase of ETFs ... is supporting the mood," said Isao Kubo, equity strategist at Nissay Asset Management.

Data released before the open showed Japan's current account surplus rose more than expected in September from a year earlier, as income from investments overseas bolstered the balance of payments.

Crude oil prices shrugged off concerns about conflicts in Libya and Ukraine and extended losses. Fears about a global supply glut and slowing growth have pushed oil prices down nearly 30 percent since June. U.S. crude shed about 0.2 percent to $77.24 per barrel, while Brent crude shed 0.3 percent to $82.06.

On Wall Street overnight, both the S&P 500 and the Dow industrials edged up to fresh closing highs.

U.S. Treasury prices slipped, putting a solid floor under the dollar as yields ticked higher. U.S. bond markets and government offices will be closed later on Tuesday in observance of the Veterans' Day holiday, while other markets will trade.

The dollar edged down about 0.1 percent on the day to 114.74 yen, below Friday's seven-year peak of 115.60.

The euro was up about 0.1 percent at $1.2436, inching away from a two-year trough of $1.2358 touched on Friday, but strategists said the single currency remained vulnerable.

"Our global flows data showed selling by both hedge funds and real money accounts post ECB in near record amounts. With both sectors not yet approaching oversold territory, there should be further room for continued selling," Citigroup's foreign exchange strategist Todd Elmer said in a note.

Investors had locked in gains on long dollar positions as Treasuries rose after headline U.S. payroll figures on Friday fell short of high expectations. The report still provided evidence of solid improvement in employment conditions, and underscored the brighter U.S. economic picture compared with Europe and Japan.

The Federal Reserve's monthly labour market conditions index released Monday showed an unchanged 4.0 level for October, which also allayed some concerns.

Diverging monetary policy outlooks between the Fed and both the European Central Bank as well as the Bank of Japan have lifted the dollar against its major rivals in recent weeks.

Spot gold gained about 0.4 percent to $1,154.75 an ounce after the previous session's 2 percent slide.

(Additional reporting by Ayai Tomisaw in Tokyo; Editing by Shri Navaratnam)