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Asian stocks slip in holiday-hit trade

Tokyo - Asian stocks slipped on Friday, as fears about the impact of the Federal Reserve's stimulus withdrawal on emerging markets offset the reassurance of upbeat U.S. growth data.

European bourses were expected to start the session on the defensive. Capital Spreads predicted Britain's FTSE 100 would open 18 points lower, or 0.3%, Germany's DAX to fall 15 points, or 0.2%; and France's CAC 40 to open flat.

"European markets look set to end the first month of 2014 on the back foot as worries about emerging market economies, the Fed tapering programme and a slowdown in China continue to act as a weight on risk appetite," Michael Hewson senior analyst at CMC Markets, said in a note to clients.

With several countries, including Hong Kong and Singapore, observing the Lunar New Year holiday, Asian activity was lighter than usual.

MSCI's broadest index of Asia-Pacific shares outside Japan fell 0.1% after earlier wavering between positive and negative territory, on track for a monthly loss of around 5%.

Japan's Nikkei stock average reversed sharply and ended down 0.6% as a resurgent yen took a toll on exporter shares. The index shed 7.8% for the week and 8.5% for the month.

Japanese data released early on Friday initially cheered investors, with the country's core consumer inflation rising at the fastest pace in more than five years in December, the job market improving and factory output growing.

Downside of upbeat data

But the upbeat data also had its downside for market participants hoping for more easing steps from the Bank of Japan.

"I think the BOJ is unlikely to adopt additional easing because there is no reason to justify it, given the positive macro-economic environment," said Junko Nishioka, chief economist at RBS Securities.

S&P 500 e-mini futures were nearly flat on the day after initially climbing after Wall Street gains, as US investors took heart from Thursday's data showing US gross domestic product grew at a 3.2% annualised pace in the fourth quarter of 2013 to round out the biggest half-year increase since 2003.

"I think the impact of emerging markets on G10 currencies will diminish and the market's focus will return to the strength of the US economy," said Koichi Takamatsu, head of forex trading at Nomura Securities in Tokyo.

But the yen's recovery on Friday afternoon showed that in the short-term, at least, the Japanese currency retains some of its safe-haven appeal.

The dollar slipped about 0.2% against the yen to ¥102.51 after dropping as low as ¥102.33. It remained above a seven-week low of ¥101.77 hit on Monday.

Euro

The euro gave up its earlier gains against the Japanese currency and slipped about 0.3 percent against the yen to ¥138.80, after falling as low as ¥138.68, its lowest since December 5.

The US dollar index was nearly flat on the day at 81.101 but remained close to a one-week high against a basket of major currencies hit on Thursday, when it rose as far as 81.135 from a session low of 80.545.

The upbeat US growth data helped calm markets roiled by anxiety over emerging economies, but it also validated the Fed's decision to stick to its tapering plan.

The Fed decided this week to stay the course on its stimulus withdrawal and reduced its bond purchases for a second time, to $65bn per month from $75bn as expected, reviving perennial concerns that capital will flow out of emerging markets.

Several emerging market central banks, including Turkey, South Africa and India, implemented extraordinary interest rate hikes this week in an effort to stem selling of their currencies.

Russia's central bank pledged unlimited foreign exchange intervention if the rouble strays outside its target band.

On the commodities front, spot gold was nearly flat at $1 243.00 an ounce, on the heels of a 2% overnight fall.

US oil edged 0.4% lower to $97.80 a barrel.

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