Asia holds breath ahead of crucial US Fed meeting

Tuesday, 2 November 2010 23:20 -     - {{hitsCtrl.values.hits}}

HONG KONG, (AFP) - Asian markets held their breath on Tuesday as traders awaited a crucial meeting of the US Federal Reserve’s policy-setting panel for indications of the size of a likely stimulus package.

With US mid-term elections adding to the general jitters, Japanese stocks were slightly down, weighed by apprehension about possible yen strengthening and the outlook for corporate earnings.

China analysts were more bullish however, attributing sluggish trade to consolidation after strong rallies on Monday.

Tokyo’s Nikkei index was down 0.10 percent in the morning, while Sydney was flat, barely reacting to a surprise hike in interest rates to 4.75 percent.

Hong Kong’s Hang Seng index was down 0.25 percent, Shanghai’s Composite index was down 0.40 percent and Seoul’s Kospi was down 0.23 percent.

All eyes were on the Fed’s two-day open market committee meeting, due to open Tuesday, for indications of the size of likely measures -- dubbed “quantitative easing” -- to rouse the world’s largest economy from its torpor.

“It’s all about QE2,” Nick Burmester, a trader at MF Global in Sydney, told Dow Jones Newswires, referring to the expected second round of US economic easing. “Everyone’s getting bearish on the size of it.”Markets have for weeks tried to second-guess the size of the likely package, anticipating an injection of cash into the US economy that would weaken the dollar and looking elsewhere for returns.

However doubts have set in about the size of the package and these were reinforced Monday by data from the the Institute of Supply Management showing that US manufacturing unexpectedly picked up steam in October.

The Institute said its survey of purchasing managers nationwide revealed strong gains in new orders and production, pushing up its index to 56.9 percent, from 54.5 percent in September.

In Tokyo shares in car maker Honda bore the brunt of Japanese anxieties about the strength of the yen, which hurts exporters, after the company downgraded its second-half net profit outlook. Honda was down 2.1 percent after falling 5.0 percent on Monday.

Analysts were looking ahead to a meeting of the Bank of Japan’s own policy meeting on Thursday amid expectations that it might launch its own stimulus measures if the yen continues rising in response to the Fed’s decisions.

However the dollar was higher against the yen in Tokyo trade after rallying on the improved US manufacturing data.

The greenback stood at 80.67 yen compared with 80.49 yen in New York overnight. The euro fetched 1.3894 dollars, down from 1.3897 dollars and was at 112.05 yen from 111.85.

On Monday the greenback hit a new 15-year low of 80.21 yen in Asia to edge closer to its lowest level since World War II, before rallying later.

In Hong Kong and Shanghai, traders took a rosier view after rallies on Monday, when Hong Kong surged 2.41 percent and Shanghai 2.52 percent.

Monday’s rises came after mainland purchasing managers indexes showed that production and new orders continued to pick up in October.

“Today’s trading will likely be rangebound, with investors awaiting news of more possible quantitative easing measures.... But the general uptrend will stay intact as the yuan continues to appreciate and attract hot money inflows,” Chen Jinren, analyst at Huatai Securities, said in Shanghai.

Oil was higher on the back of the upbeat industrial data from the United States and China, the world’s major energy consumers.

Comments from Saudi Oil Minister Ali al-Nuaimi that current oil prices at above 80 dollars a barrel were within a “very comfortable zone” also supported sentiment, analysts said. New York’s main contract, light sweet crude for December delivery, rose 23 cents to 83.18 dollars a barrel. Brent North Sea crude for December was up nine cents at 84.71 dollars.

Gold opened at 1,352.00-1,353.00 US dollars an ounce in Hong Kong, down from Monday’s close of 1,362.00-1,363.00 dollars.