US dollar up; Asia stocks slip on profit taking

Saturday, 27 November 2010 00:01 - - {{hitsCtrl.values.hits}}

HONG KONG (Reuters) - The U.S. dollar steadied on Friday, as traders girded for a break above tough chart obstacles on Europe’s fiscal problems, while the looming year end kept many equity investors eager to take profits, weighing on Asian stock markets.

The Australian dollar slid after the head of the country’s central bank said interest rates were about right for the near term, extinguishing speculation the currency’s yield advantage would get a policy boost in the next few months.

Caution ruled in financial markets, with thinning volumes driving more stock investors to take profits in the year’s winning sectors in Asia, such as consumer discretionary spending, and go to the sidelines.

The MSCI index of Asia Pacific stocks outside Japan slipped 0.3 percent <.MIAPJ0000PUS>, weighed down the most by a 0.8 percent fall in the consumer discretionary sector.

Powered by the view that the hunger of Asia’s consumers for big-ticket items, such as cars and appliances will keep growing, this sector is still up 28 percent so far this year <.MIAPJCD00PUS>, making it by and far the best performer.

Japan’s Nikkei share average <.N225> was barely changed on the day, with strength in larger exporter shares offset by weakness in retailers and industrial stocks.

The Nikkei’s 9.5 percent rise in November, driven in part by a weakening in the yen, is on course to be the biggest monthly gain since March.

Correspondingly, the U.S. dollar’s 4.3 percent rise against the yen is also the steepest single-month advance since March.

Government bonds, in turn, sold off, with 10-year futures down 2.4 points in November, the biggest monthly decline since April 2008.

The December contract was down 0.3 point at its lowest since June 23, ahead of new supply of 10-year debt next week. The flows across the yield curve have been erratic, and dealers are keeping watch of cash yields of mid-maturity bonds to see if they follow the 10-years higher, which would trigger more bullish bets to be folded.

The U.S. dollar nudged up, though mainly because of weakness in other currencies.

The dollar index, a trade-weighted measure against six other major currencies, edged up 0.1 percent to 79.85. A major chart obstacle lies at 80.05, a level which served as support in April and August.

In the absence of fresh economic news, a clear break above that level will be a medium-term bullish signal for the dollar, especially if the index closes the week above 79.73, the 200-week moving average.

The Australian dollar was down 0.5 percent to US$0.9750 after Reserve Bank of Australia Governor Glenn Stevens said policy was appropriate for now, suggesting the central bank was in no hurry to tighten rates.

He later said it was not unreasonable for investors to price in a rate hike in the middle of 2011, a comfort to longer-term investors in the Australian dollar but no solace for short-term bulls who had hoped for a near-term push to parity.