Asian shares fall on unclear US policy stimulus, Europe

Reuters: Commodities from oil to copper and Asian shares tumbled on Friday, while risk aversion lifted the dollar, after Federal Reserve Chairman Ben Bernanke disappointed investors looking for a clear signal of further U.S. monetary stimulus.

The reaction to Bernanke’s congressional testimony, which left uncertainty over the Fed’s policy decision at its June 19-20 meeting, overshadowed an initial positive reaction in global markets to a Chinese interest rate cut on Thursday.

“The weaker sentiment today reflects primarily concerns about the U.S. and Europe, because people had hoped for more quantitative easing or some form of suggestions from Bernanke to stimulate the U.S. economy yesterday but that didn’t happen,” said Dariusz Kowalczyk, senior economist and strategist, Asia ex-Japan at Credit Agricole CIB.

He added that troubles in Spain’s banking sector and uncertainty over the June 17 Greek election also helped overshadow the positive news from China.

MSCI’s broadest index of Asia-Pacific shares outside Japan .MIAPJ0000PUS slipped 1 percent, after rising 1.7 percent to a one-week high and posting its biggest one-day gain since mid-January in the previous session.

Japan’s Nikkei average fell 2 percent.

China’s move to combat faltering growth in the world’s second-largest economy, the first such cut since the global financial crisis in late 2008, underlined heightened concerns about the threat to worldwide economic growth from the euro zone’s escalating debt problems.

It precedes a deluge of Chinese economic data for May due this weekend, including fixed asset investment and industrial production numbers - two of China’s most crucial indicators of activity and job creation - fuelling some worries that the move signalled some grim figures.

“The rate cut should have been a positive but it comes at suspicious timing,” said Norihiro Fujito, senior investment strategist at Mitsubishi UFJ Morgan Stanley. “It makes people think that really bad news is going to be unleashed this weekend.”

Dimmed hopes for U.S. stimulus sent U.S. crude futures down more than $1 to a low of $82.59 a barrel and Brent crude also down over $1 to a low of $98.26 a barrel.

Copper slipped 1.8 percent to $7,364 a tonne.

As investors trimmed risk exposures and sought safety, the dollar index .DXY measured against key currencies advanced 0.5 percent. The yen, which is also perceived as a safer currency, rose, up 0.3 percent versus the dollar at 79.46 yen and up 0.5 percent against the euro at 99.53.

Some analysts said the U.S. currency was likely to remain strong on euro weakness even if prospects of further monetary accommodation by the Fed increase.

“We believe that the closing of short USD positions by the private sector, driven either by a rise in risk aversion or by a shift in investment sentiment in favour of U.S. assets, will push the USD higher,” said Morgan Stanley in a research note.

“With the USD remaining supported and global easing unlikely to provide sustained support to high-beta currencies, we expect the EUR/USD bearish trend to remain intact,” it said.

The euro eased 0.3 percent to $1.2525, retreating from a two-week high of $1.2626 hit on Thursday.

China’s monetary easing followed a rate cut by the Reserve Bank of Australia on Tuesday.

Major emerging economies Brazil and India have also lowered interest rates over the past month to fend off downward risks from the euro zone’s crisis, fuelling expectations central banks in developed countries would also follow suit.

But the European Central Bank kept interest rates steady on Wednesday, while Bernanke merely noted “significant risks” to the U.S. recovery from Europe’s debt crisis and said the bank was ready to act if financial troubles mounted.

Recent U.S. data has been erratic, with the latest report on Thursday showing the number of Americans lining up for new jobless benefits fell last week for the first time since April. Payrolls in May contracted sharply, sparking a sell-off that sent assets tumbling across the board.

Some market players said the global trend of monetary easing to counter downside risks to growth would eventually soothe investor fears and underpin markets.

“I think the Fed is likely to act this month and is currently in the midst of making some political adjustments, while the effect of China’s easing aimed at supporting its growth will gradually sink in and help resources-related assets and currencies,” said Tetsuro Ii, president of Commons Asset Management.

Spot gold extended its slide to fall 1.22 percent to $1,568.76 an ounce, after tumbling nearly 2 percent on Thursday as investors unwound bets on Fed easing expectations.

Spain remained under pressure despite selling 2.1 billion euros of fresh debt on Thursday and yields fell.

Chancellor Angela Merkel said Europe was ready to act to ensure stability in the euro zone as Fitch on Thursday cut Spain’s credit rating by three notches to BBB and suggested more downgrades could follow in coming months amid expectations it may soon seek EU help for banks beset by bad debts.

The cost of insuring against corporate and sovereign defaults in Asia inched up, with the spread on the iTraxx Asia ex-Japan investment-grade index widening by 3 basis points.