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Singapore - Asian stocks fell on Thursday, with a steady stream of weak US data putting a damper on risk taking ahead of Friday's payrolls report, though valuations will probably in the near term limit a big decline in global share prices.
Readings of economies around the world from China to the United States have been for the most part undershooting forecasts, raising questions about how well risky assets will hold up once the Federal Reserve's $600bn bond buying programme ends this month.
Even as big banks such as Citi and Goldman cut their payrolls growth forecasts, the equity market sell off was somewhat tame compared with previous bouts of so-called "risk aversion" in global markets.
Furthermore, valuations of global equities on the basis of 12-month earnings forecasts are already running below their long-term average and below where they were the last time an extended bout of risk reduction caused a rout in share prices more than a year ago.
Those factors may limit a further selloff in equities based on fears of a US economic soft patch.
Japan's Nikkei share average fell 1.6%, a smaller decline compared with the 2.3% tumble in the S&P 500 US stocks index overnight.
Political uncertainty also loomed over Tokyo, after domestic media reported that Prime Minister Naoto Kan - in danger of losing a no-confidence vote in parliament on Thursday - will offer to resign later this year after dealing with a nuclear crisis and other urgent matters related to the massive March earthquake and tsunami.
The MSCI index of Asia Pacific shares outside Japan was down 1.5%, with declines spread evenly across most sectors. But utilities and telecommunications stocks - traditionally segments of the market where investors stash their money in times of volatility - outperformed.
Equity valuations below average
Japanese stocks are valued at one time their current book value, cheaper than Irish and Portuguese shares even though the market cap of companies listed on the Tokyo Stock Exchange is the third-highest in the world, Thomson Reuters StarMine data showed.
"US shares needed a correction of their recent steep gains. Japanese shares will be capped for now but cheap valuations will give the market support," said Ryota Sakagami, strategist at Nomura Securities in Tokyo.
The MSCI all-country world stocks index is running at a 12-months forward earnings multiple of 11.7 times, lower than the 12.4 times average of the past two years and below the 13.5 times valuation they had when the escalating European debt crisis triggered a selloff in risky assets in April/May of 2010, according to I/B/E/S data.
Greece confusion stalls euro gains
The US dollar was largely unchanged on the day versus a basket of major currencies.
The euro's march above $1.44 on Wednesday was halted after Moody's cut its sovereign rating on Greece by three notches as Athens struggles to avert a debt default.
The single currency was trading at $1.4340 on Thursday, up 0.2%, but risked backtracking further to its Monday low around $1.4250 if headlines on Greece suggest a new round of financing is in jeopardy.
At times contradicting headlines on prospects for Greece's near-term financing has made the euro zig zag, though hopes for Greece were kindled after ECB Executive Board member Juergen Stark was quoted as saying the central bank might accept a rollover of Greek debt by private investors.
Elsewhere in currency markets, the Australia dollar edged up after stronger-than-expected Australian retail sales, though remained in a range carved out last month and later was unchanged on the day at $1.0615 .
The Australian dollar is considered by market participants to be a weather vane of investor tolerance for risk because of its relatively high yield and close economic relationship with China.
US 10-year Treasury futures were steady after hitting a high for the year on Wednesday.
The sudden spill in US stocks sent investors scurrying to the liquidity of the US government bond market and sent the benchmark cash 10-year yield below 3%.
The 10-year note was retracing some of its overnight climb in early on Thursday trade, bringing the yield back up a bit to 2.97%. A mix of selling in shorter maturity paper by speculators and mutual funds and central bank buying of longer dated debt made the yield curve its flattest of the year on Wednesday, Royal Bank of Scotland strategists said in a note.
