The impact of the three-year euro debt crisis on Asia was evident on
Tuesday with Japan's Manufacturing Purchasing Managers Index (PMI) falling at
its fastest pace since last year's earthquake and tsunami, as demand for
Japanese goods slows in Europe and China.
Market sentiment has been underpinned by speculation the ECB, at a
meeting on Thursday, may resume its bond buying program to shoot down rising
Spanish and Italian borrowing costs, but uncertainty remained partly because
Germany has repeated its opposition to such a step.
The Fed has also come under greater pressure to act as recent data
for the third quarter has disappointed, but many economists do not expect
further easing until September. The Fed starts a two-day interest rate policy
meeting on Tuesday.
"With the market at a crossroads between satisfaction and
disappointment, investors have little choice other than to sit on the sidelines
for now and see what the central banks do," said Kim Soo-young, an analyst
at KB Investment & Securities.
MSCI's broadest index of Asia-Pacific shares outside Japan
.MIAPJ0000PUS was up 0.1 percent after touching a three-week high on Monday.
The index was set for a monthly gain of about 2.2 percent, compared to a near
flat showing last July.
U.S. stocks finished mostly flat on Monday as investors paused
following the best two-day run this year, while European shares hit three-month
highs to end above a key technical level.
Japan's Nikkei stock average
finance/markets/index?symbol=jp%21n225">.N225 opened down 0.4 percent,
after hitting a one-week high on Monday. .T
The euro steadied at $1.2263,, below a three-week high of $1.2390
touched on Friday but well above a two-year low around $1.2042 reached last
week.
The Australian dollar held near a four-month high against the U.S.
dollar of $1.0508 and an all-time peak versus the euro around A$1.1646, both
reached in offshore trade, as speculation of monetary stimulus spurred investor
appetite for high-yielding currency.
"We expect that the Fed will choose to wait for more decisive
data and that the ECB measures will be watered down versus market expectations
- and will likely boost market volatility and increase demand for safer assets
such as the USD," said Barclays Capital analysts in a research note.
"More fundamentally, it seems to us that the market response to
policy initiatives from the ECB or anywhere else should be conditioned by the
degree to which they address the deeper drivers of the economic and financial
problem," they said.
More evidence emerged of the euro zone debt crisis damaging economic
activities and dampening morale.
The Markit/JMMA Japan Manufacturing Purchasing Managers Index showed
on Tuesday it fell to a seasonally adjusted 47.9 in July from 49.9 in June.
On Monday, the European Commission's sentiment index showed the euro
zone's business sentiment fell to a 34-month low in July, near levels last seen
after the collapse of Lehman Brothers.
Expectations for an imminent ECB action supported Italy's debt
auction on Monday, with Rome selling 5.48 billion euros in bonds, near the top
of its planned issue range, and benchmark 10-year borrowing costs falling below
6 percent for the first time since April. But 10-year yields stayed elevated
near 6 percent.
Asian credit markets held steady, after the spread on the iTraxx
Asia ex-Japan investment-grade index fell to its lowest since early April on
Monday in thin trading volumes.
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