RPT-GLOBAL MARKETS-Asian shares slip on U.S. fiscal worries, Europe woes

Fri Nov 9, 2012 2:42am EST

* MSCI Asia ex-Japan down 0.2 pct, Nikkei ends down 0.9 pct

* Euro inches up, off 2-month low vs dollar

* Gold firms, set for biggest weekly gain since end-January

* JGB 10-year yield ticks down again to 3-month low

* European shares likely narrowly mixed

By Chikako Mogi

TOKYO, Nov 9 (Reuters) - Asian shares extended losses on Friday as markets fretted over the U.S. fiscal cliff and the risk of it tipping the world's largest economy into recession, as well as ongoing doubts about a workable bailout for Greece.

After a two-day selloff, a 0.4 percent rise in U.S. stock futures pointed to a firm Wall Street open. European shares were seen n a rrowly mixed, with financial spreadbetters expecting London's FTSE 100, Paris's CAC-40 and Frankfurt's DAX to open somwhere between a 0.1 percent fall and a 0.1 percent rise.

Thursday's losses in global stocks weighed on MSCI's broadest index of Asia-Pacific shares outside Japan , which eased 0.2 percent on top of the previous day's 1.3 percent slide, its biggest one-day percentage drop in two months. The index was set for a 0.4 percent weekly fall.

Washington must resolve the "fiscal cliff" by finding a compromise to cut the U.S. deficit before nearly $600 billion worth of spending cuts and tax increases kick in in early 2013. Market are also eyeing the debt ceiling, which needs to be raised to avoid a government shutdown.

Analysts say the fiscal cliff could derail the U.S. economy, which had recently defied a general trend in other parts of the world by showing signs of a modest recovery, and a U.S. recession could drag the global economy down further.

"The focus has turned back to the economy after the U.S. election, with concerns over euro zone risk resurfacing while the fiscal cliff worries weigh on the local index," said Kim Soon-young, an analyst at IBK Securities.

Chinese data showed industrial output and retail sales for October slightly exceeded expectations, while annual October consumer inflation eased to its slowest pace in nearly three years, giving policymakers scope to further looser monetary policy if needed. The data, coming against the general bearish sentiment, helped prevent Asian shares from widening losses.

Annual growth in fixed-asset investment also overshot market expectations to raise hopes for a modest economic recovery in the fourth quarter.

"But given the uncertainties in the outside world, we expect the recovery momentum to be limited and the full-year industrial output is likely to be around 10 percent for this year," said Iang Chao, analyst at Guotai Junan Securities in Shanghai.

Australian shares fell 0.5 percent and South Korean shares ended down 0.5 percent. Japan's Nikkei stock average closed 0.9 percent lower.

But the Philippines stock market was slightly firmer, as a lack of confidence in the U.S. and Europe may turn these markets more appealing for asset diversification.

A Philippines' 10-year global peso note issue attracted huge demand and allowed the government to raise $750 million at a yield lower than initial guidance.

As investors generally reduced exposure to risk assets, safe-haven government bonds remained firm, with 10-year Japanese government bond yields hitting a fresh three-month low of 0.73 percent. Benchmark 10-year U.S. Treasury yield steadied around 1.63 percent, after touching a low of 1.618 percent on Thursday.

EURO OFF LOWS

The dollar was down 0.1 percent after hitting a two-month high against a basket of major currencies of 81.001 on Thursday. Rising demand for Treasuries on the back of the looming U.S. fiscal crisis underpinned the dollar.

Gold rose to a three-week high of $1,737.60 an ounce, up 3.6 percent on the week, its biggest weekly gain since the end of January. Bullion is supported by expectations for a continuation of ultra-easy U.S. monetary policy under President Barack Obama's second term, and on demand for safety due to concerns about the U.S. fiscal woes.

The euro recovered, up 0.2 percent to $1.2773, having fallen to a two-month low of $1.2717 on Thursday.

The euro was undermined after the European Central Bank kept rates on hold on Thursday, as expected, and its president, Mario Draghi, sounded downbeat on the euro zone economy and said he was ready to start new purchases of bonds.

"Euro zone policymakers are just trying to buy time, which is what they have been doing all along. So the euro faces downside risks. I think it could test $1.25," said a trader at a European bank.

More worrying signs about the European economy emerged after data showed German exports slid at their fastest pace since late last year, adding to evidence that the euro zone's debt crisis has begun to inflict a heavy toll on Europe's largest economy.

A coalition government in heavily indebted Greece still needs to pass the 2013 budget in a vote expected on Sunday.

But Spain on Thursday successfully sold long-term debt to complete its 2012 issuance programme, giving the government breathing room to hold out before requesting international aid.

U.S. crude rose 0.4 percent to $85.41 a barrel and Brent rose 0.2 percent to $107.45.

Sluggish equities kept sentiment weak in Asian credit markets, widening the spread on the iTraxx Asia ex-Japan investment-grade index by 5 basis points.

A couple walks along the rough surf during sunset at Oahu's North Shore, December 26, 2013. REUTERS/Kevin Lamarque

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