HONG KONG (Reuters): Asian stocks outside Japan struggled to hold on to early gains on Monday, as investors remained wary before a slew of corporate earnings and a Fed meeting this week expected to give a cautious readout on the health of the world’s biggest economy.
Concerns about rising inflation gave investors an excuse to book profits in some Asian markets after strong rallies in 2010, but rather than exiting the region funds were being reallocated to countries seen as having a better grip on price pressures.
Profit-taking also hit the euro, which backed away from a nine-week high, although easing concerns about Europe’s sovereign debt crisis gave some support to the single currency.
The MSCI index of Asia Pacific stocks outside of Japan was flat on the day after being up nearly 0.3 percent in early trade.
It posted its worst weekly performance in nearly two months last week and is down by 1 percent for the month. In contrast, the Dow Jones industrial average is up 2.5 percent in the same period.
“The Dow Jones gain on Friday and higher Asian stocks this morning may provide positive support,” said Parin Kitchaotornpitak, a senior analyst at broker Far East Securities in Bangkok. “But we still see some pressure from selling by foreign investors.”
Japan’s Nikkei average rose 0.5 percent, with resource shares popular and recently beaten-down exporters bought amid expectations of robust earnings reports from Japanese firms this week.
The euro stayed above the $1.36 line, having burst through the key resistance level last Friday, helped by hawkish comments from the European Central Bank chief Jean-Claude Trichet which gave markets an excuse to cut short euro positions.
That is in sharp contrast to the Fed, which is likely to leave policy unchanged at a review on Wednesday and note a slight improvement in the economy’s outlook.
The euro has rallied some 6 percent in the past two weeks on demand from Asian central banks, traders said.
While sellers targeted stocks in India, China and Indonesia last week, on worries that authorities were being too slow to tighten policy, Citigroup strategists said inflation was running at a lower level than seen during previous cycles.
Markus Rosgen, head of Asia ex-Japan strategy at Citigroup, said inflation in Asia typically tends to pick up during this stage of the economic cycle as economies grow into their excess capacity, only to eventually subside.