Nikkei outperforms Asian stocks as Fed looms

By Ian Chua

SYDNEY (Reuters) - Japanese stocks rose on Wednesday, thanks to a positive lead from Wall Street plus a softer yen, outperforming the rest of Asia which anxiously seeks clarity on the Federal Reserve's next policy step.

Major currencies were mostly subdued ahead of the end of the Fed meeting. A policy statement is due at 1800 GMT and Chairman Ben Bernanke will brief media half an hour later.

MSCI's broadest index of Asia-Pacific shares outside Japan eased 0.3 percent, led by a 1.3 percent fall in mainland Chinese stocks. Share markets in Hong Kong and South Korea were also lower.

Tokyo's Nikkei average bucked the region's softer trend to rise 1.1 percent as exporters such as Honda Motors benefited from a softer yen. Gains in Japanese stocks followed a rise of 0.8 percent in the U.S. S&P 500 index.

"Speculation about the Fed's decision is still keeping investors on the sidelines, so volume may be low. But Wall Street's optimistic stance on the Fed outcome is serving as a tailwind to Japanese stocks," said Yutaka Miura, a senior technical analyst at Mizuho Securities.

Bernanke has the opportunity to soothe market jitters about a possible scaling back of the bank's $85 billion monthly bond-purchase programme. But nobody is sure how markets will interpret his stance.

The quantitative easing policy has helped fuel a global rally in stock markets and recent talk of a pullback in stimulus has knocked major indexes off their highs.

Indeed, the MSCI index has dropped about 8 percent since May 22 when Bernanke told Congress that a decision to dial down its bond-buying programme could come in the "next few meetings" if the U.S. economy maintained its momentum.

Emerging markets, commodity currencies and U.S. Treasuries were among the hardest hit as investors rushed to take profits in a reaction that many analysts have described as overblown.

"We expect the chairman to highlight that tapering is not necessarily tightening, but instead is a slowing in the pace of accommodation," said Michael Gapen, analyst at Barclays Capital.

"Whether the chairman succeeds in convincing markets that tapering is conditional on incoming data, as opposed to a foregone conclusion, and that a willingness to taper should be separated from the remaining components of the exit strategy remains an open question," he wrote in a note.

With the Fed outcome looming, currency investors retreated to the sidelines. That saw the dollar just a touch firmer against a basket of major currencies.

Against the yen, the dollar was flat at 95.21, holding onto recent gains, while the euro was also little changed at 127.45, following a near 1-percent rally on Tuesday.

The euro bought $1.3390, remaining near a four-month peak of $1.3416.

Commodities were also marking time with U.S. crude flat at $98.40 per barrel and copper at $7,004 per tonne.

Gold was steadier at $1,365 an ounce, following a 1.2 percent slide on Tuesday amid uncertainty about the Fed outcome.

(Additional reporting by Ayai Tomisawa in Tokyo; Editing by Eric Meijer and Richard Borsuk)