Asian shares inch down as earnings caution weighs

Reuters: Asian shares inched down on caution over the region’s new corporate reporting season, after global shares faltered overnight on weak earning reports and outlook.

The MSCI index of Asia-Pacific shares outside Japan shed earlier gains on Tuesday to ease 0.1%, dragged down by a 0.4% decline in South Korean shares. But a 0.1% gain in Australian shares helped partially offset the downward pressure.

Seoul shares slipped ahead of quarterly results from domestic blue chip stocks, starting with POSCO, the world’s fourth-biggest steelmaker, later in the day.

POSCO, in which Warren Buffett’s Berkshire Hathaway is a shareholder, will kick off the earnings season for major Asian steelmakers. It is likely to post a third consecutive loss, dogged by weak China demand and prices.

U.S. stocks fell on Monday after heavy-equipment maker Caterpillar Inc slashed its 2012 forecast and warned that the global economy was slowing more quickly than it had expected. Caterpillar’s move pulled European equities lower as well.

Japan’s Nikkei average erased earlier gains and was down 0.2%. The gains had been rooted in the yen’s weakening.

The dollar rose to 80.02 yen, its highest since July 6, with expectations for further monetary easing from the Bank of Japan on October 30 to underpin the Japanese currency.

The yen weakened to a 5-1/2 month low of 104.59 yen against the euro and a 1-month low of 82.68 against the Australian dollar.

Traders have said that sentiment towards the yen has been turning around in recent weeks, and yen selling gained momentum on Monday after the dollar/yen broke key technical resistances.

“Generally speaking, expectations for a BOJ easing help push the dollar up against the yen, but the effect on the economy from easing is limited. It’s more to do with recent market flows which have been pointing to a weaker yen,” said Hiroshi Maeba, head of FX trading Japan for UBS in Tokyo.

Maeba said the dollar may be capped around 80 yen in the near term but support appeared firm at 79.60-79.70 yen. He expects to dollar to reach 82 yen by the end of the year.

On Monday, a slew of economic reports offered the latest evidence that Japan, the world’s third-biggest economy, was struggling to sustain its momentum in the face of global headwinds and cooling demand and investment at home.

Exports suffered their sharpest decline since the aftermath of the March 2011 earthquake. Business sentiment hit its lowest since 2010, hurt by the territorial stand-off with China, Japan’s top export market.

Several central banks hold policy meeting this week, including the U.S. Federal Reserve, the Bank of Canada and the Reserve Bank of New Zealand. All of them are expected to keep rates on hold but may offer dovish statements, Barclays Capital said in a research note.

“We recommend staying engaged in risky assets in FX, taking advantage of the low volatility conditions being supported by central bank policy,” it said.

The Fed is likely to hold off from taking fresh steps, opting to review the impact of the significant action it took last month and keep a low profile in its last gathering before the November 6 U.S. election.

The euro steadied at $1.3055, drawing support from expectations for bailouts to Spain and Greece in coming weeks and also on comments by European Central Bank policymaker Joerg Asmussen, who reiterated that the bank’s commitment to do everything in its power to show the euro is irreversible. U.S. crude rose 0.3% to $88.93 a barrel and Brent steadied at $109.37.

Asian credit markets were subdued, with the spread on the iTraxx Asia ex-Japan investment-grade index widening by 1 basis point early on Tuesday.