Asian shares eke out slim gains, dollar holds firm

By Wayne Cole

SYDNEY (Reuters) - Asian stocks drifted higher on Monday in sluggish trade as investors chose discretion over valour ahead of central bank meetings in Europe and the always-critical U.S. payrolls report.

MSCI's broadest index of Asia-Pacific shares outside Japan was just a shade firmer at 479.92.

Japanese markets were closed for a holiday.

Modest gains in Hong Kong and Australia were countered by losses in South Korea. Australian shares edged up 0.1 percent as another domestic bank reported record profits.

"We are bullish going into next year, but it wouldn't surprise to see some sort of breather ... We think any pullback is going to be very shallow," said Martin Lakos, division director at Macquarie Bank, of the Australian market.

Major currencies were likewise quiet with the dollar still well supported in the wake of upbeat U.S. manufacturing data that stirred speculation the Federal Reserve might scale back its bond-buying in December, rather than in March as many in the market currently anticipate.

There are no less than four Fed officials speaking on Monday, starting with Fed Bank of Dallas President Richard Fisher in Sydney. Fed Governor Jerome Powell and the heads of the St. Louis and Boston Feds all appear later in the day.

The dollar index was holding firm at 80.691 having climbed to a six-week peak on Friday. It was also up on the yen at 98.76 and threatening a major chart target at 99.00.

The dollar fared best against the euro which was undermined by speculation the European Central Bank (ECB) would have to ease again given disappointing news on unemployment and a startlingly low reading of inflation.

The common currency was pinned at $1.3494 on Monday, well below its recent high of $1.3832. The ECB holds a policy meeting on Thursday and it will be under intense pressure to stimulate the economy.

"We expect the opening statement, and Q&A, to have a distinctly dovish tone," wrote analysts at RBC Capital Markets in a note to clients.

"For now, we think that the Governing Council will refrain from any immediate action, but we expect the downbeat tone of next week's meeting to lay the groundwork for a policy response over the next few months."

The Bank of England holds it policy meeting on Thursday and is expected to stay on hold following a run of improving economic data recently.

A bigger event for markets will be Friday's U.S. payrolls report which is expected to show a modest rise of just 125,000 in October, amid some uncertainty about the impact of the government shut down.

A soft report, and particularly any rise in the jobless rate, would lean against the Fed tapering in December.

Also of note will be the U.S. gross domestic product (GDP) due on Thursday, expected to show annualised growth of 1.9 percent in the third quarter, down from 2.5 percent the previous quarter.

All the talk of Fed tapering saw U.S. Treasury yields rise for a third straight session on Friday. Yields on the benchmark 10-year U.S. Treasury note jumped to 2.63 percent, leaving behind the week's low of 2.47 percent.

Cash Treasuries were not trading in Asia on Monday due to the Japanese holiday, but Treasury futures were 2 ticks lower.

In commodity markets, prices were held back by the bounce in the U.S. dollar. Spot gold was trading at $1,315.06 an ounce, having crumbled from a peak of $1,361.60 last week. Copper was a touch firmer at $7,251 a tonne.

Oil prices steadied following last week's losses as a firmer dollar and ample supplies outweighed concerns about a drop in Libyan crude exports.

Brent crude for December delivery was up 16 cents at $106.01 a barrel. U.S. oil for December delivery added 8 cents to $94.69.

(Additional reporting by Thuy Ong in Sydney; Editing by Eric Meijer)

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Asian shares sag, dollar up after upbeat U.S. data

By Lisa Twaronite

TOKYO (Reuters) - Asian shares struggled on Friday, while the dollar pushed higher after upbeat U.S. data added to uncertainty over when the Federal Reserve will begin tapering its massive stimulus programme.

Reassuring signals on China's factory activity capped losses for equities, however.

China's manufacturing sector grew at the fastest pace in 18 months in October, with the official Purchasing Managers' Index (PMI) rising to 51.4 last month from September's 51.1, beating economists' consensus forecast of 51.2.

A separate private report, the final HSBC/Markit PMI, came in at 50.9, up from 50.2 in September and unchanged from a preliminary flash estimate released last week.

"China is on track for a gradual growth recovery," said Hongbin Qu, HSBC's chief economist for China, in a statement accompanying the PMI.

MSCI's broadest index of Asia-Pacific shares outside Japan fell 0.2 percent, while Japan's Nikkei stock average extended losses in the afternoon session, dropping 1.2 percent.

U.S. S&P E-mini futures edged up slightly, after the S&P 500 Index closed down about 0.4 percent but still gained 4.5 percent for the month.

Later on Friday, the U.S. ISM survey of manufacturing for October could offer investors a fresh signal on the Fed's future course.

"If the ISM report is better than expected, it could add to revived tapering expectations, and U.S. yields and the dollar could go up and stocks could go down," said Masashi Murata, senior currency strategist at Brown Brothers Harriman in Tokyo.

Data on Thursday showed the pace of business activity in the U.S. Midwest jumped more than expected in October, soothing some worries about sluggish fourth-quarter growth after last month's federal government shutdown.

A decline in new jobless claims in the latest week also added to evidence that the economy weathered the shutdown. New claims fell by 10,000 to 340,000, just above the average estimate of 339,000.

Still, not all investors or economists were convinced that the latest U.S. data heralded a shift in monetary policy expectations.

"The existence of noise in the October data will likely make it difficult for the Fed to gather enough evidence to start tapering in December," strategists at Barclays wrote in a note to clients, adding that they still to expect the central bank to begin reducing its current $85 billion monthly bond purchases in March 2014.

PRESSURE ON EURO

The euro remained under pressure after plunging in the previous session as euro-zone inflation dropped to its lowest rate in nearly four years, heightening expectations that the European Central Bank will further ease its monetary policy.

The euro dropped about 0.2 percent to $1.3557, moving away from a two-year peak of $1.3833 set one week ago. On Thursday, it suffered its biggest one-day fall against the greenback in six months, tumbling 1.1 percent.

Data on Thursday showed euro-area inflation slowed to a four-year low of 0.7 percent last month, far below the ECB's target of just under 2 percent. Other data showed unemployment held at record highs in September.

The dollar index <.dxy>, which measures the greenback against six major currencies, was on track for a sixth session of gains, rising about 0.1 percent to 80.296 after touching a two-week peak of 80.418 and pulling further away from a nine-month trough of 78.998 hit one week ago.

Against the Japanese currency, the dollar was about 0.4 percent lower on the day at 97.94 yen.

In commodities trading, gold steadied but was still trading close to its lowest in nearly two weeks, hurt by sharp losses in the previous session from month-end profit-taking, the strong U.S. economic data and the higher dollar.

Spot gold edged up 0.1 percent to $1,324.86 an ounce, after sliding 1.4 percent on Thursday.

Copper got a lift from the China data, rising 0.1 percent to $7,256 a tonne, moving back toward a one-week peak of $7,300 hit on Thursday.

Brent crude for December was slightly up at $109.05 a barrel, while U.S. crude also edged up to $96.46.

(Additional reporting by Natalie Thomas in Beijing; Editing by Eric Meijer & Kim Coghill)

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Asian markets seen cautiously firmer ahead of Fed statement

By Wayne Cole

SYDNEY (Reuters) - Asian share markets should take heart from record highs in U.S. stocks on Wednesday as investors wager the Federal Reserve will rock no boats at its policy meeting and leave stimulus in place for the next few months at least.

Australia was the first market to dip its toe in the water, gaining 0.5 percent, while MSCI's index of Asia-Pacific shares outside Japan was a shade firmer.

A mixed bag of U.S. economic data caused few frowns since it merely reinforced expectations the central bank will maintain to the status quo when its two-day policy meeting ends on Wednesday.

Even the U.S. dollar got a lift as dealers gauged the prospect of easy money for longer had now been pretty much discounted following two months of losses.

Markets seem to be operating on the assumption that the Fed's policy statement will not challenge the growing consensus that any tapering of its $85 billion of monthly asset purchases will not start until March at the earliest.

Such an outcome would be taken as justifying the rallies in stocks and bonds seen in recent weeks and might have only a limited impact on prices in the near term.

But it also means markets are vulnerable to a surprise.

"With expectations of taper firmly kicked into 2014 the risk that the FOMC could decide to move earlier looks asymmetrical," said Patrick Perret-Greene, an analyst at Australia and New Zealand Bank.

"If the Fed does nothing tomorrow then nothing really happens but if they do something or even hint at moves in the not too distant future the effects could be dramatic."

The Fed's decision is due at 1800 GMT, though divining its true message may be tricky as no new economic forecasts are released and nor will Chairman Ben Bernanke be giving a news conference.

BE BORING, PLEASE

For now, markets are hoping the Fed will be boring.

The Dow Jones industrial average ended Tuesday 0.72 percent higher at an all-time closing peak of 15,680.35.

The S&P 500 gained 0.56 percent aided further by a jump in heavyweight IBM after the company's board of directors approved another $15 billion for stock buy-backs.

Among the U.S. data, a measure of core retail sales showed surprising resilience in September, yet a grim survey of consumers highlighted the heavy toll the government shutdown had taken on the public mood.

MSCI's world equity index rose 0.25 percent On Tuesday, but remained within last week's trading range.

Having fallen steadily since the last Fed meeting, the U.S. dollar seems to have reached a bottom in the last few days.

The dollar index reached a one-week peak of 79.618, having climbed 0.5 percent on Tuesday. Just last Friday, it had plumbed a nine-month low at 78.998.

"Fed meetings have not been friendly to the USD this year, with the dollar weakening following every meeting in 2013 with the exception of June," analysts at BNP Paribas wrote in a client note.

"However, with markets already having adjusted to a much more dovish view on the Fed outlook, we think the USD is likely to hold up better this time."

The euro slipped to $1.3746, pulling further away from a 23-month peak of $1.3833 set just a few days ago.

Yields on the benchmark 10-year Treasury note were at 2.505 percent after dipping from a high of 2.5360 on Tuesday. The market has enjoyed a substantial rally in the past two months with yields falling all the way from 3 percent.

Spot gold edged back to $1,343.64 an ounce as the dollar gained, but is still up more than 7 percent from a three-month low hit mid-October.

U.S. crude oil was off 67 cents at $97.53 a barrel.. Traders termed this a consolidation after a sharp gain on Monday when reports of a sharp drop in Libyan oil exports rekindled worries over global supply.

(Editing by Eric Meijer)

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Asian shares creep ahead, count on Fed being benign

By Wayne Cole

SYDNEY (Reuters) - Asian share markets took heart from record highs in U.S. stocks on Wednesday as investors wagered the Federal Reserve would rock no boats at its policy meeting and leave stimulus in place for the next few months at least.

Japan's Nikkei led the way with a gain of 1.2 percent, while Australian shares added 0.3 percent and Shanghai stocks 1 percent. MSCI's index of Asia-Pacific shares outside Japan crept up 0.5 percent.

European shares were expected to edge higher, too. Capital Spreads predicted Britain's FTSE 100 to open 13 points or 0.2 percent higher, Germany's DAX to gain 0.04 percent and France's CAC 40 to open flat.

A mixed bag of economic data caused few frowns since it merely reinforced expectations the Fed will maintain the status quo when its two-day policy meeting ends on Wednesday.

Even the U.S. dollar got a lift as dealers judged the prospect of easy money for longer had now been pretty much discounted following two months of losses.

Markets seem to be operating on the assumption that the Fed's policy statement will not challenge the growing consensus that any tapering of its $85 billion of monthly asset purchases will not start until March at the earliest.

Such an outcome would be taken as justifying the rallies in stocks and bonds seen in recent weeks and might have only a limited impact on prices in the near term.

But it also means markets are vulnerable to a surprise.

"With expectations of taper firmly kicked into 2014 the risk that the FOMC could decide to move earlier looks asymmetrical," said Patrick Perret-Green, an analyst at ANZ Bank.

"If the Fed does nothing tomorrow then nothing really happens but if they do something or even hint at moves in the not too distant future the effects could be dramatic."

The Fed's decision is due at 1800 GMT, though divining its true message may be tricky as no new economic forecasts are released and nor will Chairman Ben Bernanke be giving a news conference.

BE BORING, PLEASE

For now, markets are counting on the Fed being boring.

The Dow Jones industrial average ended Tuesday 0.72 percent higher at an all-time closing peak of 15,680.35.

The S&P 500 gained 0.56 percent, aided further by a jump in heavyweight IBM after the company's board of directors approved another $15 billion for stock buybacks.

The flow of economic data proved too mixed to offer direction. Industrial output bounced in Japan, but disappointed in South Korea due to strikes at automakers.

In the United States, a measure of core retail sales showed surprising resilience in September, yet a grim survey of consumers highlighted the heavy toll the recent government shutdown had taken on the public mood.

In currencies, dollar bears looked exhausted after two months of selling and the currency bounced broadly. The dollar index reached a one-week peak of 79.667, having climbed 0.5 percent on Tuesday. Just last Friday, it had plumbed a nine-month low at 78.998.

"Fed meetings have not been friendly to the USD this year, with the dollar weakening following every meeting in 2013 with the exception of June," analysts at BNP Paribas wrote in a client note.

"However, with markets already having adjusted to a much more dovish view on the Fed outlook, we think the USD is likely to hold up better this time."

The euro slipped to $1.3740, pulling away from a 23-month peak of $1.3833 set just a few days ago. The dollar firmed to 98.21 yen, from its recent trough of 96.94.

Yields on the benchmark 10-year Treasury note were steady at 2.506 percent after dipping from a high of 2.5360 on Tuesday. The market has enjoyed a substantial rally in the past two months with yields falling all the way from 3 percent.

Spot gold edged back to $1,344.51 an ounce as the dollar gained, but is still up more than 7 percent from a three-month low hit in mid-October.

Brent oil futures lost 36 cents to $108.65 a barrel while U.S. crude oil dipped 58 cents to $97.62.

Traders termed this a consolidation after a big gain on Monday when reports of a sharp drop in Libyan oil exports rekindled worries over global supply.

(Additional reporting by Vidya Ranganathan; Editing by Eric Meijer, Shri Navaratnam and Chris Gallagher)

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Australian shares lead Asian rebound; yen softens

By Ian Chua

SYDNEY (Reuters) - Australian stocks scaled a five-year peak on Monday, leading a rebound in Asia after strong results from the likes of Microsoft pushed Wall Street to another record closing high, while investors gave the safe-haven yen a wide berth.

MSCI's broadest index of Asia-Pacific shares outside Japan rose 0.7 percent, recovering a chunk of last week's 1.1 percent loss -- the biggest in two months -- that was driven by concerns that China may tighten policy to keep prices under control.

Australian shares put on 1.2 percent to reach their highest since June 2008, Hong Kong's Hang Seng added 0.4 percent, and South Korea's KOSPI rose 0.3 percent.

Japan's Nikkei climbed 1.0 percent, clawing back some of Friday's 2.7 percent drop.

"The market is getting bought back after excessive selling on Friday... but I don't think we will be testing new highs," said Kenichi Hirano, strategist at Tachibana Securities of the Nikkei.

Many traders suspect further gains in Asia may be limited as investors keep a wary eye what steps Chinese policymakers might take to cool property prices and inflation.

Several markets in Asia are closed for public holidays on Monday, including New Zealand and the Philippines.

RISK IN PLAY

With risk appetite on the mend, demand for the safe-haven yen waned. That saw the Australian dollar gain 0.5 percent to 93.68 yen, and both the euro and dollar edged up slightly to 134.74 and 97.52 respectively.

Against the dollar, the euro was a tad firmer at $1.3814 and within striking distance of Friday's two-year high of

$1.3833.

The dollar has been under broad pressure in the past few weeks on growing expectations the Federal Reserve will maintain its massive stimulus programme into next year.

The Fed's policy-setting arm meets on Oct 29-30 and is expected to hold off any move to scale down its $85 billion monthly bond-buying programme.

Analysts reckon policymakers want to see the impact of the U.S. budget battle that took the country to the brink of a debt default and caused a partial government shutdown.

"The FOMC should be a non-event... the Washington debates cloud the growth outlook, so forget about tapering," analysts at JPMorgan wrote in a client note, adding the April 2014 meeting looked like the soonest start for any tapering.

In contrast to equities, commodities got off to a sleepy start with copper a touch lower at $7,178.25 a tonne, while U.S. crude oil slipped 0.1 percent to $97.72 a barrel. Spot gold was steady $1,352.44 an ounce.

(Additional reporting by Tomo Uetake in Tokyo; Editing by John Mair)

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Asian stock markets fall, dollar near two-year low vs euro

By Dominic Lau and Vidya Ranganathan

TOKYO (Reuters) - A stronger yen depressed Japanese stocks on Friday, while the dollar was hemmed in near a two-year low against the euro by expectations the U.S. Federal Reserve will continue its monetary stimulus well into 2014.

Those expectations were tempered, however, by continued worries over tighter cash markets in China, leading to a lopsided and selective rally in Asian markets.

The Nikkei share average's 2 percent drop was also set to pressure European markets on Friday, financial bookmakers predicted.

Financial spreadbetters were forecasting falls in Germany and France as the region's equity indexes pause for breath after hitting fresh highs this week. They expected Britain's FTSE 100 to open almost unchanged but Germany's DAX was seen opening down by as much as 0.3 percent while France's CAC 40 was seen falling 0.4 percent.

In Asia, the Indonesian rupiah rallied nearly 2 percent against the weak dollar, but the Aussie was on the back foot. Aussie shares rose 0.3 percent, ending near the 5-year high of 5,402.4 hit earlier in the week.

Meanwhile, South Korean stock markets fell as investors braced for some profit-taking in a market that has seen record foreign buying for 40 consecutive sessions and has pushed the won to a two-year high this week.

The KOSPI index was down 0.8 percent even after Samsung Electronics Co Ltd, the index's largest component, said its quarterly operating profit surged 26 percent to a new record.

"A combination of foreign outflows and shadows of China liquidity concerns are dragging on the market," said Lee Kyung-soo, an analyst at Shinyoung Securities.

MSCI's broadest index of Asia-Pacific shares outside Japan eased 0.35 percent, reversing earlier slight gains. The index fell 0.1 percent on Thursday as rising Chinese money market rates countered signs of a pick-up in manufacturing.

Shanghai shares hit their lowest levels in a month, while Tokyo's stock market was set to suffer its first weekly drop in three weeks.

Although the Japanese quarterly earnings season is still at an early stage, 70 percent of the 10 Nikkei companies that have reported so far have missed market expectations, according to Thomson Reuters StarMine. That compared with 42 percent in the previous quarter.

U.S. S&P E-mini futures were flat in early trade. The S&P 500 index had advanced 0.3 percent on solid earnings and expectations that monetary stimulus will be in place for the foreseeable future after weak data.

U.S. manufacturing output fell for the first time in four years and the number of new claims for unemployment benefits fell less than expected last week.

DOLLAR WEAKNESS

The euro was up 0.1 percent $1.3815, not far from a two-year high of $1.3826 touched on Thursday and shrugging off data showing the pace of growth in euro zone business unexpectedly eased this month.

"The dollar will not rally without Fed tapering expectations rising again, but we would not chase EUR/USD higher here, as rate compression suggests the pair is unlikely to break much higher," Societe Generale analysts wrote in a note, saying they favoured Scandinavian and Antipodean currencies into year-end.

"Fed tapering expectations being pushed out into 2014 and further ECB easing early next year suggest a favourable policy environment for the FX carry trade. Throw in lower volatility and seasonality effects, and one has the perfect cocktail for the carry trade."

Yet the Antipodeans, the Aussie and New Zealand dollars, were nursing broad losses too as investors quit extended long positions in the two currencies.

The Aussie was settling around $0.9605, after touching a low of $0.9582. It had hit a 4-1/2-month peak of $0.9758 on Wednesday, but is on track for a loss of close to 1 percent for the week.

The kiwi was holding just above a 10-day low at $0.8310. It had also peaked during the week at a multi-month high, but now faces a weekly loss of more than 2 percent.

Against the yen, the dollar stood at 97.09, a shade off the two-week low of 97.15 yen hit on Wednesday.

The dollar index, which tracks a basket of major currencies, was little changed.

Gold paused for breath after climbing 1.1 percent on Thursday, while U.S. crude prices added 0.3 percent to about $97.35 a barrel, moving away from a 3-1/2 month low of $95.95 touched in the previous session.

(Additional reporting by Gyles Beckford in Wellington and Jungmin Jang in Seoul; Editing by Kim Coghill and Eric Meijer)

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Asian shares slip, China looks set to tighten liquidity

By Dominic Lau

TOKYO (Reuters) - Asian shares fell in volatile trade on Thursday and the dollar came under pressure as a further spike in Chinese money-market rates tempered the effect of a survey showing a pick-up in manufacturing.

China's benchmark seven-day repo rates opened up nearly a full percentage point at 5 percent after the central bank let cash drain from the money market for a second week.

The Chinese central bank declined to inject cash for a third day as regulators showed signs of concern that loose liquidity might again be fuelling risky credit growth.

MSCI's broadest index of Asia-Pacific shares outside Japan dipped 0.1 percent after trading higher on the back of the preliminary survey on Chinese manufacturing sector. It had lost 0.9 percent on Wednesday to end a four-day winning streak.

China's CSI300 index seesawed in a choppy session after falling 2.1 percent in the previous two sessions, while Japan's Nikkei share average fell 0.7 percent, also hurt by a firmer yen against the dollar.

"I wouldn't add on any new positions from here," said Hong Hao, chief strategist at Bank of Communications International Securities.

"Cash demand is going to be high in October because people have to pay taxes and banks have to park reserves with the central bank, but I think people ought to see that the People's Bank of China has already tightened because they have not sold any yuan, allowing the yuan to spike," he added.

"Now with the property restrictions starting to appear, that usually doesn't bode well for the stock market."

Australian shares advanced 0.4 percent and the Australian dollar rose 0.4 percent to $0.9654 on the day. China is Australia's biggest export market.

Strong new orders drove the fastest expansion in China's manufacturing sector in seven months in October, according to the Markit/HSBC Purchasing Managers' Index, more evidence that the world's second-largest economy is stabilising although a strong rebound remains elusive.

CHINA PAIN

Before the concerns over China checked the market bullishness, global equity markets had been rallying after the resolution of the U.S. budget impasse and on expectations the Federal Reserve would extend its cheap money stimulus into 2014.

After a run of record highs, the U.S. Standard & Poor's 500 index fell 0.5 percent on Wednesday as shares of heavy-equipment maker Caterpillar and semiconductor companies tumbled after they reported earnings.

According to Thomson Reuters I/B/E/S, the one-month earning momentum for S&P 500 companies deteriorated to minus 3.6 percent from minus 1.5 percent last month.

U.S. S&P E-mini futures added 0.2 percent in Asian trade on Thursday.

The dollar was at 0.8916 franc, just above a two-year low of 0.8908 hit on Wednesday. It was holding at 97.325 yen, near a two-week low touched in the previous session.

Against a basket of major currencies, the dollar was down 0.1 percent at 79.196, within striking distance from an eight-month low of 79.137 touched on Wednesday.

U.S. Treasury yields fell to three-months lows on more bets that the Fed will maintain its stimulus into next year.

U.S. crude prices climbed 0.7 percent to about $97.5 a barrel after falling to a 3-1/2 month low of $96.16 on Wednesday.

Gold inched up 0.1 percent to around $1,334.4 an ounce, recouping some of Wednesday's lost ground.

(Additional reporting by Clement Tan in Hong Kong; Editing by Eric Meijer and Richard Borsuk)

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Asian shares try to find footing after tumble

By Dominic Lau

TOKYO (Reuters) - Asian shares tried to steady on Thursday following a tumble sparked by concerns about China's economic outlook, and the dollar languished near a two-year low against the Swiss franc.

On Wednesday, Chinese money-market rates rose to three-month highs after the central bank failed to inject cash for a second day as regulators showed signs of concern that loose liquidity might be fuelling another round of risky credit growth.

MSCI's broadest index of Asia-Pacific shares outside Japan was flat after shedding 0.9 percent on Wednesday to end a four-day winning streak.

Tokyo's Nikkei futures fell 0.8 percent as the yen gained ground on the dollar, indicating a softer open on Thursday after the previous session's 2 percent decline.

Investors will get further clues to the health of the world's second-largest economy with a preliminary survey on Chinese manufacturing activity data due at 0145 GMT.

"The initial reaction to the rise in China's money market rates has translated into lower U.S. Treasury yields and weaker equity markets," analysts at BNP Paribas wrote in a note.

"The pullback in risk sentiment should remain temporary as the delay to the Fed's QE tapering plans until the first quarter of 2014 makes long carry positions attractive. This implies that commodity and emerging market currencies should regain the ground lost over the past 24 hours."

Before the concerns over China checked the market bullishness, global equity markets had been rallying after the resolution of the U.S. budget impasse and on expectations the Federal Reserve would extend its cheap money stimulus into 2014.

After hitting a run of record highs, the U.S. Standard & Poor's 500 index fell 0.5 percent on Wednesday as shares of heavy-equipment maker Caterpillar and semiconductor companies tumbled after reporting earnings.

U.S. S&P E-mini futures were flat in early Asian trade on Thursday.

The dollar was at 0.8923 franc, just above a two-year low of 0.8908 hit on Wednesday. It was holding at 97.39 yen, near a two-week low touched in the previous session.

U.S. Treasury yields fell to three-months lows on more bets that the Fed will maintain its stimulus efforts into next year.

U.S. crude prices rose 0.2 percent to about $97 a barrel after falling to a 3-1/2 month low of $96.16 on Wednesday.

(Editing by John Mair)

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European shares at five-year highs, Asian markets gain

By Richard Hubbard

LONDON (Reuters) - Global shares hovered at five-year highs on Monday while the dollar edged up against the yen as investors looked ahead to a deluge of U.S. data for clues on when the Federal Reserve will begin scaling back its stimulus.

Many in the markets think the Fed will be wary of trimming its $85 billion-a-month bond-buying programme, which has supported riskier assets like shares, until the economic impact of a 16-day partial U.S. government shutdown becomes clearer.

"We're opening with a slightly positive tone ..., on the back of last week's decision to extend (U.S. fiscal) deadlines which is seen pushing back tapering from the Fed, a view which continues to support risky assets," said Richard McGuire, senior rate strategist at Rabobank.

European shares touched a fresh five-year high in early trade, though moves were limited ahead of the U.S. data, which begins with home sales numbers on Monday and includes the keenly watched non-farm payrolls report on Tuesday.

Expectations the Fed would have to delay lifted the broad S&P 500 index to a record closing high on Friday, marking its best weekly gain in three months as stronger-than-expected corporate earnings added to the positive tone.

Asian shares outside Japan followed on with a 0.2 percent rise to reach a five-month high on Monday. Australia's S&P/ASX 200 also touched a five-year peak, helped in part by data last week showing an improvement in economic growth in China - Australia's biggest export market.

MSCI's world equity index, which tracks shares in 45 countries, was holding near its own fresh five-year high reached last week.

RISK ON

In the currency market the greater prospect of a Fed delay weighed on the dollar against most currencies, as it would act to keep rates on U.S. debt lower than those offered by other major nations.

However, the U.S. currency rose against the safe-havens of the yen and the Swiss franc on expectations for a strong jobs report.

Against a basket of six major currencies, the dollar was steady at 79.70 not very far from Friday's low of 79.478, its weakest point since February.

The dollar edged up 0.4 percent against the Japanese yen to 98.01 yen, though below its near three-week high of 99.01 yen set last Thursday.

While some investors positioned for a strong non-farm payrolls reading on Tuesday others said an outcome more in line with expectations would see a limited response as the market was likely to wait for the effect of this month's partial government shutdown on the U.S. economy to become clear.

"It's going to take a while before we get what policymakers would consider a clean set of data. It may not come through until December or January," said Ian Stannard, head of European foreign exchange strategy for Morgan Stanley.

As a result, investors will not be expecting the Fed to take any decision on tapering until next year, which is likely to favour higher-yielding currencies like the Australian and Canadian dollars, Stannard said.

"We're going to see over the coming weeks quite a positive environment, more of a risk-on environment, starting to develop," he said.

With the dollar under pressure and the Fed expected to keep pumping in money to support the U.S. economy, commodities like gold were enjoying renewed demand.

Gold edged up to near one-and-a-half-week highs around $1,320 an ounce on Monday, having already gained 3.4 percent last week. Silver outperformed gold, rising 1.4 percent at $22.18 an ounce.

Brent crude oil saw more muted reaction, dipping under $110 a barrel as investors were waiting for the resumption of U.S. oil data along with the other economic numbers.

The U.S. Energy Information Administration will release weekly oil data for the week ended October 11 later on Monday. Its normal release schedule will resume after that, and oil data for last week will be released on Wednesday.

"The market's just in a wait-and-see mode ... The thing on most traders' minds is what sort of story is going to be told by the U.S. data now that it's going to be released again," said Ric Spooner, chief market analyst at CMC Markets.

(Additional reporting by Marius Zaharia and Jessica Jaganathan; Editing by Susan Fenton)

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U.S. debt default? Asian policymakers ready $6 trillion forex safety net

By Rafael Nam and Se Young Lee

MUMBAI/SEOUL (Reuters) - As the U.S. struggles to avert a debt default, Asia's policymakers have trillions of reasons to believe they may be shielded from the latest financial storm brewing across the Pacific.

From South Korea to Pakistan, Asia's central banks are estimated to have amassed some $5.7 trillion in foreign exchange reserves excluding safe-haven Japan, much of it during the last five years of rapid money printing by the U.S. Federal Reserve.

Data this week showed those reserves continued to pile up, with countries having added an estimated $86.7 billion in the July-September quarter, according to data for 12 Asian countries whose reserves are tracked by Reuters.

China is by far the biggest holder of reserves, with an estimated $3.57 trillion according to a Reuters poll of analysts, which shows Asia's largest economy probably accumulated $68 billion alone in the previous three months.

"The level of external reserves of Asian countries continues to be healthy," said Philippine central bank governor Amando Tetangco.

"We are in a better position to meet the challenges that may be brought about by external shocks. But having said that, we have to remain vigilant. We should not be complacent."

For added protection, Asian governments have been whittling down their debt and cementing foreign exchange swap agreements that allow them to borrow their neighbours' reserves if necessary.

All that money might seem cold comfort given that roughly three-fifths of it is kept in U.S. dollars, invested in U.S. government bonds and other U.S. assets.

A U.S. default would hit the value of those investments and - as when the U.S. suffered a credit ratings downgrade in 2011 - paradoxically send investors fleeing from risky emerging markets, selling Asian currencies for the world's most commonly used legal tender, the U.S. dollar.

By making sure they have more than enough foreign currency in reserve to buy back their own, however, Asia's central banks hope they can keep any investors' rush for the exits from turning into a devastating stampede.

"We still think any external liquidity risk to be manageable," said Gundy Cahyadi, at economist at DBS Bank in Singapore. "In the most recent weeks the return of flows into Indonesia's equities and bonds suggest that foreign investors are still willing to invest in Asia."

That kind of confidence stands in stark contrast to the mood a few months ago, when markets were tumbling and countries with big trade gaps such as India and Indonesia seemed to be hurtling towards the kind of currency crisis that wracked the region in 1997 and 1998.

SIGNS OF STABILISATION

Facing strong capital outflows as investors pulled out their funds, India and Indonesia were compelled to raise interest rates at the expense of economic growth to defend their currencies. New Delhi limited gold imports and cut spending to reduce the country's current account deficit.

With their supply of dollars dwindling, both raised more money from abroad. Indonesia raised $1.5 billion selling U.S. dollar-denominated bonds. Meanwhile, Indian lenders have raised $5.7 billion from citizens and other loans abroad as of earlier this week after the central bank provided currency subsidies.

Much of that panic has passed, at least for now.

Indonesia's central bank said this week its reserves had risen 2.9 percent in September to $95.7 billion, although that would still cover just five months of imports. The Philippines' reserves edge up slightly to $83 billion, while Thailand's reserves recovered from a year low of $168.77 billion at the end of August to $172.2 billion.

"I think our current foreign reserves are sufficient for handling any volatility," said Bank of Thailand Deputy Governor Pongpen Ruengvirayudh.

Even India, whose reserves sank by almost $20 billion between May and September to $274.8 billion, has seen them recover slightly to $277.73 billion.

The rise reflects in part reduced anxiety surrounding emerging economies since the U.S. Federal Reserve last month unexpectedly delayed plans to slow its asset-purchases.

The rupee has recovered roughly 10 percent since tumbling to a record low of 68.85 to the U.S. dollar in late August, while the rupiah -- Asia's worst performing currency this year -- appears to have found its footing.

"One can never say we've done enough," said India's Finance Minister Palaniappan Chidambaram. "We've done a lot of things, but we have to do many more things, and I think we will do them in the next few weeks and months, both by the government and by the central bank."

But doubts persist among investors as to whether Asia's leaders, like their U.S. counterparts, have the political will to tackle remaining vulnerabilities.

"Asia isn't as vulnerable as those fearing a re-run of crises past have come to suspect. Risks may be rising, but the region's defences remain sturdy enough to prevent a crippling blow," HSBC said in a note this week.

"That, alas, does not mean the issue can be ignored. For one, it renders growth sensitive to shifts in financial mood. What's more, if left uncorrected, the process might eventually, even if not currently, put Asia into a far more uncomfortable spot."

Years of low global interest rates, for example, sent cheap money washing into Asia, fueling a borrowing binge that has sent debt levels in many countries soaring.

Moreover, a U.S. default and ensuing damage to the global economy could snuff out a nascent recovery of exports to the United States, Europe and China from countries such as South Korea, Malaysia and Thailand.

Asian countries have therefore been working to augment their reserves with currency swap agreements. Indonesia has in the last two months signed the equivalent of $27 billion in swap agreements with China and Japan. China and South Korea in June extended their own roughly $60 billion worth swap agreement by three years.

China, Japan and South Korea have also joined the 10 members of the Association of Southeast Asian Nations in the Chiang Mai Initiative, a $240 billion regional lender of last resort.

But just how much insurance these agreements provide remains untested. Analysts say drawing on swaps during a crisis could fuel market panic by highlighting a country's vulnerability.

"Currency swaps are meant to say 'we have these things that will support us in the worst situation and we won't default,'" KEB futures currency analyst Chung Kyung-parl in Seoul said.

"But using the swaps sends a negative signal; policymakers should not put themselves in a position in which they must tap into the lines."

(Additional reporting by Karen Lema in Manila, Orathai Sriring in Bangkok, Rieka Rahadiana in Jakarta, Siva Sithraputhran in Kuala Lumpur, and Suvashree Dey Choudhury and Swati Bhat in Mumbai; Editing by Kim Coghill)

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