TOKYO Asian shares retreated from near 17-month highs on Thursday and commodities fell as negotiations to avert a U.S. fiscal crunch turned to personal taunts, putting a timely solution at risk.
The yen remained under pressure, after rising slightly in a kneejerk reaction when the Bank of Japan eased monetary policy on cue, expanding its asset-buying and lending programme by 10 trillion yen under intensifying pressure from incoming premier Shinzo Abe to confront chronic deflation.
Sentiment turned cautious towards risk assets in general, hurting commodities and commodity-linked currencies while keeping gold barely above its 3-1/2-month low hit earlier in the week. The dollar edged up 0.1 percent against a basket of major currencies.
"Negotiations are (not progressing) which is probably why we're seeing a sell-off today and the risk sentiment coming off," said Natalie Rampono, a commodities analyst at ANZ in Melbourne. "The markets are being directed by sentiment from the U.S. fiscal cliff talks and so that will have the biggest influence on prices at the moment."
MSCI's broadest index of Asia-Pacific shares outside Japan eased 0.3 percent but held near its highest in nearly 17 months, tracking global stocks which retreated from 17-month peaks on Wednesday on U.S. budget concerns.
Hong Kong shares also fell 0.3 percent after hitting a near 17-month high the day before.
But Australian shares defied the general bearish trend to add 0.3 percent to a 17-month high and Seoul shares .KS11 rose 0.3 percent on speculation conservative Park Geun-hye's victory in the presidential election would pave the way for fresh stimulus measures from the government.
The conflict over the stalled fiscal cliff talks grew more heated Wednesday and threatened to become even more so Thursday when the action is expected to shift for the first time to the floor of the U.S. House of Representatives.
"If this discussion continues to go as it has gone today (Wednesday), watch for more selling off as hopelessness begins to take hold for many investors across all asset classes," said Neal Gilbert, market strategist at GFT Forex, in a note to clients.
The Nikkei stock average trimmed earlier losses of around 1 percent to fall 0.6 percent, after closing Wednesday up 2.4 percent and above the key 10,000 level for the first time since April on expectations for more easing which weakened the yen and improved earnings prospects for Japanese exporters.
The dollar briefly dipped below 84 yen after the BOJ's decision before trading back up at 84.11, down 0.3 percent on the day. It stood around 84.20 before the BOJ's policy announcement. Still, the dollar was near Wednesday's 20-month high of 84.62.
The euro fell 0.4 percent against the yen at 111.23 yen, retreating from a 16-month high of 112.59 yen reached on Wednesday.
The BOJ topped up its asset-buying and lending programme by 10 trillion yen to 101 trillion yen by a unanimous vote, expanding stimulus for the third time in the past four months, and said it would review its guidelines for medium- and long-term price stability at its next policy-setting meeting in January. (The current range zero to 2 percent consumer inflation.)
The euro was steady around $1.3224, slipping from a 8-1/2-month high of $1.33085 hit on Wednesday after an Ifo Institute survey showed German business sentiment improving in December at its fastest rate in 2-1/2 years, boosting hopes Europe's largest economy will bounce back quickly after a weak end to 2012.
Data from the Investment Company Institute, a U.S. mutual fund trade organisation, on Wednesday showed investors in U.S.-based mutual funds pulled $8.48 billion from equity funds for the week ended December 12, reflecting nervousness caused by the uncertainty over the U.S. fiscal cliff.
U.S. crude fell 0.4 percent to $89.64 a barrel and Brent fell 0.3 percent to $110.08.
London copper was down 0.6 percent to $7,879.75 a tonne.
Gold has fallen prey to funds taking profits before the year-end book-closing but having held above a key technical level, the metal's downside may be limited.
Spot gold steadied around $1,667.16 an ounce, above a 3-1/2-month low of $1,661.01 hit on Tuesday and its 200-day moving average.
Lacklustre equities slowed trading in Asian credit markets, keeping the spreads on the iTraxx Asia ex-Japan investment-grade index barely moved from Wednesday.
(Additional reporting by Jessica Jaganathan in Singapore; Editing by Eric Meijer)