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Tokyo - Asian shares steadied on Friday as the region's benchmark indices marked their best first quarter in over 20 years and investors awaited a meeting on a possible eurozone firewall and Chinese data that may dictate market trends in coming months.
MSCI's broadest index of Asia Pacific shares outside Japan inched up 0.1%, in positive territory after a two-day decline, but still off a one-week high hit earlier this week.
The index is set for a quarterly gain of about 11%, the best showing since the third quarter of 2010 and best first quarter in 21 years. The index then ended up 19%.
Japan's Nikkei average slipped 0.2%, retreating from Thursday's one-year high, but is up more than 19% and set for its best first quarter in 24 years.
Markets remained on an uptrend through the first quarter as massive liquidity injections from global central banks soothed jitters about a credit crunch in the eurozone, just as it became certain Greece would secure a crucial bailout fund.
Improving US data also buoyed prices, offsetting deteriorating European conditions and growing doubts over China's resilience.
Near the quarter-end, however, investor sentiment across asset classes turned bearish due to fears of a potential growth slowdown, with European troubles back in focus and concerns about China, the world's second largest economy.
"Europe is the biggest risk factor in the second quarter, with elections in Greece and France potentially fuelling doubts about commitments to fiscal reforms if those opposed to austerity measures win," said Daisuke Karakama, market economist for Mizuho Corporate Bank in Tokyo.
"Failure to ratify a permanent bailout fund before its scheduled launch in July could rattle financial markets," he said.
European Union economic and financial affairs ministers meeting in Copenhagen on Friday and Saturday are due to finalise a financial firewall that should help the eurozone's highly indebted economies, such as Italy and Spain, but there is discord about the size of the rescue fund.
With financial markets starting to price in concerns about a slowdown in China, official China manufacturing PMI for March due on Sunday presents the next risk to assets with close links to Chinese growth, such as the Australian dollar, analysts at Barclays Capital said.
End-quarter adjustments
Despite caution over risk taking, quarter-end repatriation flows drove up such riskier assets as the Australian dollar and the euro.
The euro was up 0.4% to $1.3350, up from its lowest level in three sessions of $1.3251 hit on Thursday when concerns about slow progress in debt-cutting efforts in the eurozone's large and indebted countries undermined the currency.
The Aussie also inched up 0.2% to $1.0395.
"Some currencies are up on seasonal repatriation flows with the end of the quarter, totally unrelated to the fundamental trend," said Hideki Amikura, forex manager at Nomura Trust.
Amikura said concerns about slowdowns in China and challenges facing the eurozone fiscal reforms were a done-deal and whether the US economy remains on a recovery course to maintain yield differentials is a far more significant factor for market trends in the second quarter.
"US macro data from April is key to gauging the Federal Reserve's monetary policy direction, which shapes the US yield curve and affects money flows," he said.
The degree of commitments to accommodative policy from the United States and Japan will determine the dollar/yen, which Amikura expects to trade between ¥80 - ¥85 in April-June.
As risk aversion trades return, the structure of currency flows into Europe is undergoing significant changes, Morgan Stanley said in a research note.
"The composition of inflows, shifting away from long-term capital towards short-dated funds, has increased the vulnerability of the EUR in our view," it said.
New US claims for jobless benefits fell only slightly last week, missing forecasts for a greater decline, but the level was the lowest since April 2008, while another report showed US gross domestic product expanded 3% in the fourth quarter as expected.
Oil rebounds
Traders took the opportunity to cover short positions and bought on price dips after oil tumbled in the past two sessions on growing talks of a release of strategic petroleum reserves by some consumer nations and a surge in US crude inventories.
Brent crude was up 0.3% to $122.78 a barrel after settling down $1.77 on Thursday. US crude futures rose 0.7% to $103.52 a barrel on Friday after losing $2.63 the day before.
Asian credit markets were weak, with the spread on the iTraxx Asia ex-Japan investment-grade index wider by 5 basis points.
