U.S. fiscal woes cap Asian shares, yen stays weak

TOKYO Thu Dec 27, 2012 6:02am IST

People look at a stock quotation board outside a brokerage in a business district in Tokyo December 19, 2012. REUTERS/Toru Hanai/Files

People look at a stock quotation board outside a brokerage in a business district in Tokyo December 19, 2012.

Credit: Reuters/Toru Hanai/Files

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TOKYO (Reuters) - Asian shares were capped on Thursday on investor edginess about the chances of U.S. lawmakers striking a deal to avoid a fiscal crunch by December 31, while the yen stayed under pressure on the prospect of drastic monetary easing and massive fiscal spending.

MSCI's broadest index of Asia-Pacific shares outside Japan was little changed, with Australian shares inching down 0.1 percent and South Korean shares opening 0.1 percent lower. U.S. stocks fell slightly in thin volume and European markets were shut for the Christmas holiday.

"Uncertainty from the U.S. fiscal cliff has sapped investor initiative, and the market currently lacks energy due to low turnover," Lee Kyung-min, an analyst at Woori Investment & Securities, said of Seoul shares.

As U.S. President Barack Obama cut short his Christmas vacation to resume talks to avoid the "fiscal cliff" of tax hikes and spending cuts worth some $600 billion, the White House on Wednesday called on congressional Republicans not to block a resolution in the U.S. Congress.

U.S. House of Representatives Speaker John Boehner on his part on Wednesday urged the Senate to pass its version of legislation to avert the cliff, in a sign that congressional efforts to avoid a budget crisis are reviving days ahead of the year-end deadline.

Asset performance in 2012: link.reuters.com/muc46s

Economists warn that higher taxes and lower spending in the world's largest economy could plunge it into recession, dragging other economies with it.

Such concerns pushed up a gauge of investor anxiety, the CBOE Volatility Index, to 19.48, its highest close since late July, also underpinning the dollar as the fiscal impasse continues to sap investor appetite for risky assets, raising the dollar's safe-haven appeal.

BOLD IN JAPAN

Against the yen, the dollar traded at 85.60 yen, hovering near its highest since September 2010, after new Japanese Prime Minister Shinzo Abe said his government will pursue bold monetary policy, flexible fiscal policy and a growth strategy to encourage private investment.

Abe has pledged to make his top priority beating deflation and taming the strong yen, which are dragging down the world's third biggest economy.

The yen is on track for a drop of over 10 percent this year, its biggest since 2005. The yen also fell to a 16-month low against the euro at 113.47 yen on EBS on Wednesday.

The weaker yen, a boon for Japanese exporters, lifted the benchmark Nikkei stock average to nine-month highs and above a key 10,000 mark.

The Nikkei opened up 0.6 percent to its highest since March 2011.

"The Nikkei will test the year-to-date's high. Nikkei futures already cleared above 10,300 in yesterday's night session," said Takashi Hiroki, chief strategist at Monex Inc. "The yen depreciation continues."

Hiroki said expectations of further gains in the new year were likely to deter investors from sharp profit-taking on Friday, the final trading day of the year.

New Japanese Finance Minister Taro Aso said on Thursday the prime minister has ordered him to compile a stimulus package without adhering to the previous government's 44 trillion yen (519 billion) cap on new bond issuance.

U.S. crude futures were down 0.1 percent at $90.92 a barrel, after rising overnight to the highest in more than nine weeks on hopes that renewed talks will prevent a U.S. fiscal crisis.

(Additional reporting by Dominic Lau in Tokyo and Joyce Lee in Seoul; Editing by Daniel Magnowski)

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