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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