TOKYO Stocks and the dollar eased on Wednesday as investors began to price in a likely win for President Barack Obama, who is seen to favour keeping interest rates low, in a close-fought U.S. election.
Obama scored victories in Wisconsin and Pennsylvania, leaving Republican challenger Mitt Romney likely needing to win all three of the battleground states of Ohio, Florida and Virginia, where the race was too close to call.
S&P 500 Index futures extended losses to fall 0.8 percent as more election results trickled in, pointing to a reversal of Wall Street's election day gains when trading resumes.
"You can sort of see if you watch the S&P futures, ticking with every bit of news, down on the night. This to me means the odds of Obama winning is probably higher now," said Bob Gelfond, chief executive of MQS Asset Management in New York.
"It means we are going to have more of the same, slow growth and more regulation and this isn't conducive for business ... We are already down 1 percent on the S&P futures. The odds were considered high that Obama was going to get reelected and was already largely priced in."
MSCI's broadest index of Asia-Pacific shares outside Japan dipped in and out of negative territory, while Japan's Nikkei average erased early gains to fall 0.4 percent.
Australian shares rose 0.2 percent rise, supported by an overnight rise in commodities that boosted mining stocks. But South Korean shares gave up early gains to fall 0.4 percent and Hong Kong shares also dropped 0.2 percent.
OBAMA BOND BOOST
The general market view was a Romney win would favour stocks, due to the perception his policies are pro-business, while a second term under Obama would favour bonds as he is perceived to favour low interest rates.
The dollar dropped 0.6 percent against the yen to 79.88, while the yen jumped 0.6 percent against the euro to 102.32 yen.
The dollar was down 0.2 percent against a basket of major currencies, retreating from a two-month high scaled on Monday.
The euro rose 0.2 percent against the dollar to near $1.2840, off a two-month low around $1.2764 hit on Tuesday.
"Markets are putting the finishing touches on their bets for a victory by Obama," said Yuji Saito, director of foreign exchange at Credit Agricole in Tokyo. "Obama's win means the quantitative easing will continue and pressure the dollar while boosting bonds."
Ten-year Treasuries climbed 21/32 in price to yield 1.677 percent, down about 7 basis points from late U.S. trade on Tuesday.
Markets will still have the two houses of Congress split between the two parties, keeping the possibility intact of messy negotiations to avert the looming "fiscal cliff" - nearly $600 billion worth of spending cuts and tax increases that risk pushing the economy into deep recession.
Any sharp downturn in the world's largest economy would raise concerns about demand for industrial metals, analysts say.
But prospects for a continuation of Federal Reserve Chairman Ben Bernanke's aggressive quantitative easing, may help offset such worries to some extent as such a policy has propped up risk-favourable market sentiment. Gold has also been supported by concerns that easing could boost the prospects for inflation.
Spot gold rose 0.3 percent to $1,719.55 an ounce, reversing from a 0.5 percent drop earlier in the day.
U.S. crude futures fell 0.6 percent to $88.18 a barrel and Brent fell 0.4 percent to $110.65.
Aside from the U.S. election, markets will eye developments in Greece, where the parliament later on Wednesday will vote on 13.5 billion euros of fresh spending cuts and tax hikes. The austerity measures are crucial to unlocking 31.5 billion euros in aid from global lenders to keep the debt-laden country afloat.
Asian credit markets firmed slightly, tightening the spread on the iTraxx Asia ex-Japan investment-grade index by 1 basis point.
(Editing by Alex Richardson)