Asia shares edge back towards highs,

• tanvi_singh
• July 29, 2010

Asian stocks edged back up towards a three-month high and the dollar eased towards three-month lows on Thursday, hit by soft US data that highlighted the patchy nature of the US economic recovery. An unexpected drop in US June durable goods orders and a downbeat Federal Reserve take on the economy were the latest in a string of lacklustre indicators to suggest that the US economy is losing steam, broadly dampening investor sentiment.

European shares were expected to open little changed to lower as investors waited for more company earnings results and a raft of euro zone economic data, including readings on consumer and business sentiment. Traders said a recent move back into riskier assets had cooled after the Fed’s Beige Book of anecdotal reports pointed to a less-than-booming US recovery, with sluggish housing markets and sales of costly items such as new cars weakening.

“Shares are taking a breather today as weak US economic data is weighing on sentiment, especially towards technology exporters,” said Lee Jin-woo, a market analyst at Mirae Asset Securities. Asian shares dipped in early trade before edging back up toward levels hit the day before, when they marked their highest since May 5. Materials and consumer discretionary shares saw solid buying interest.

The MSCI index of Asia Pacific shares ex-Japan clawed up 0.1 per cent, with Shanghai and Taiwan shares gaining modestly while Australian shares were flat. Japan’s Nikkei average lost 0.6 per cent to 9,696.02 as investors took profits after a rally that had lifted the benchmark to a two-week closing high on Wednesday. Panasonic Corp tumbled 7.7 per cent after sources told Reuters it plans to acquire the shares it does not already own in Sanyo Electric Co and Panasonic Electric Works Co Ltd. Sanyo shares soared more than 26 per cent at one point.

Attention is now turning to US jobless claims later in the day and US second quarter GDP on Friday, with analysts saying it was difficult to predict longer-term market direction until these reports, and non-farm payrolls next week, come out. “I don’t think shares are set for a rally, unless these indicators show the economy is improving,” said Hiroaki Osakabe, fund manager at Chibagin Asset Management in Tokyo. “In Japan’s case, poor indicators may keep the yen strong (as investors seek safe havens) and that will make it very hard for the Nikkei to rise.”

A poll showed annual US growth in the second quarter was expected to slow to 2.5 per cent from 2.7 per cent in the first quarter amid a cooling in consumer demand, and a recent flurry of weak data suggest it lost more momentum heading into summer.

The New Zealand dollar fell sharply after the Reserve Bank of Zealand signalled the pace of further interest rate hikes would be less than earlier thought, though it later staged a mild recovery. The central bank lifted interest rates by a quarter point on Thursday, as widely expected, but said further hikes would probably be more gradual because of a deteriorating outlook for the country’s main trading partners and subdued domestic demand.

The kiwi fell to as low as $0.7207, from $0.7280 before the announcement, before staging a mild recovery. “The neutral statement and revised market expectations for future rate decisions will help in taking upside pressure off the kiwi,” said Josh Williamson, an analyst at Citi. The dollar index against a basket of major currencies was down 0.2 per cent at 81.990 after the weak US data, with near-term support at 81.44, the 50 per cent retracement of the index’s move from a low of 74.17 in December 2009 to a high of 88.71 on June 7.

The greenback also lost ground against the yen, edging down 0.3 per cent to 87.23 yen. The euro consolidated near $1.30, holding near 11-week highs against the dollar as concerns shifted from Europe’s debt crisis to the uneven US economy. But gold rebounded, although gains could be limited after holdings in the world’s largest gold-backed ETF (exchange-traded fund) SPDR Gold Trust dropped to their weakest since June.

Spot gold rose to $1,166.50 an ounce by 0600 GMT after falling as low as $1,156.90 on Wednesday, its weakest since late April. US crude futures were littled changed at just over $77 a barrel after falling for a second session overnight on a suprise build in US crude oil inventories.
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• Last Modified: July 29, 2010
• Filed Under: Latest News, MARKETS, NATION, WORLD