Shares steady as data ease global fears

2012-01-18 09:31

Tokyo - Asian shares and the euro steadied on Wednesday, the day after economic data soothed global worries, and the focus returned to Europe with Portugal testing investor confidence in a debt sale and Greece resuming talks on its debt restructuring.

The MSCI's broadest index of Asia Pacific shares outside Japan, which rose more than 2% on Tuesday, was barely changed after touching a two-month high.

Japan's Nikkei average closed up 1%, helped partly by technical short-covering after stop losses on Nikkei futures were breached.

Financial spreadbetters expect Britain's FTSE 100 to open down 0.2% to up 0.1%, Germany's DAX to open up as much as 0.1%, and France's CAC-40 to start down as much as 0.2%.

"After yesterday's rally, investors now shift their focus to talks on Greece, with a lot being unresolved," said Frances Cheung, senior strategist for Asia ex-Japan at Credit Agricole CIB in Hong Kong.

"Ahead of the Chinese new year in many places in Asia, investors will likely keep themselves on the sidelines, reluctant to take positions yet," especially given much talk about an easing by China before the holidays, she said.

Analysts polled by Reuters forecast further cuts in 2012 in Beijing's required reserve ratio (RRR), with many banking on one in the run-up to the Lunar New Year holiday at the start of next week to ease anticipated liquidity squeezes as demand for cash soars.

Later on Wednesday, international creditors were set to meet the Greek government to resume talks that broke down last week over the interest rate Greece will offer on new bonds and a plan to enforce investor losses. A deal with the private sector is vital to cash-strapped Athens which must pay for bond redemptions in March or face bankruptcy.

Greek Prime Minister Lucas Papademos told the New York Times that creditors may be forced to take losses if no agreement can be reached.

Data from China, the United States and Germany on Tuesday suggested that the eurozone debt crisis has not devastated their activity, but the data also left scope for policy easing to underpin growth given the fragile state of economies.

Battered capital markets in the wake of the European crisis took a toll on trading revenue and fee-generating deals at Citigroup Inc, which reported an 11% drop in quarterly profit and pared gains in US stocks.

Euro funding eyes

Investor risk appetite will be tested later on Wednesday when Portugal sells treasury bills in its biggest debt auction since last year's bailout. Germany also holds a debt auction on Wednesday.

Spain and France, both of which saw solid demand for their bill auctions early this week, will face a tougher challenge when they tap the market with longer-dated debts by Friday.

As investors have largely sold eurozone government bonds to reduce exposure, further selling was likely to be smaller in relative terms, analysts at Barclays Capital said in a note.

The euro rose 0.2% to $1.2762 on short covering, after topping $1.2800 on Tuesday, holding off its lowest since late August 2010 of $1.2624 hit last week.

"The euro's move up is a short-term correction to recent excessive pessimism, but its medium-term continuation is questionable," said Kimihiko Tomita, head of foreign exchange for State Street Global Markets in Tokyo.

"Investors remain wary of eurozone debt auctions, with the debt situation still so unclear," he added.

A weaker dollar on the back of the euro's gains pushed oil higher while copper climbed 0.4% after Tuesday's rally as investors focused on long-term demand from China.

The European Central Bank's aggressive liquidity pumping measure has alleviated fears of another global credit crunch, and eurozone banks' demand for short-term loans is expected to fall as the ECB will relax on Wednesday the cash buffers it requires banks to place with it.

On top of China's growth data slightly beating forecasts, manufacturing in New York State picked up in January and Germany's ZEW investor sentiment survey posted its biggest-ever monthly improvement in January, although it stayed in negative territory.

Asian credit markets were subdued, with spreads on the iTraxx Asia ex-Japan investment grade index barely changed from Tuesday.