GLOBAL MARKETS-Asian shares firm, but U.S. budget impasse limits gains

Fri Sep 27, 2013 1:54am EDT

* New U.S. jobless claims near six-year low in latest week

* Improving U.S. job market revives Fed tapering expectations

* Confusing communication leaves investors lost on Fed intention

* Euro hurt by political worries in Rome, sterling up on Carney

* Impasse in Washington talks hangs over market gains

By Hideyuki Sano

TOKYO, Sept 27 (Reuters) - Most Asian stock markets posted modest gains up on Friday after U.S. jobless claims data pointed to an improving labour market, but the lack of progress in budget and debt negotiations in Washington kept investors on edge.

The solid jobs data revived expectations of a reduction in U.S. monetary stimulus after the Federal Reserve's surprise decision not to do so last week and conflicting messages from various top Fed officials since then.

European shares also were expected to gain slightly, with Germany's DAX, Britain's FTSE and France's Cac 40 all seen up about 0.1 percent. U.S. stock futures were marginally weaker.

MSCI's broadest index of Asia-Pacific shares outside Japan gained 0.2 percent, with Australian shares scaling a five-year high, in sympathy with Wall Street shares, which broke a five-day losing streak on Thursday.

Japan's Nikkei bucked the trend, falling 0.4 percent as the market turned its focus to the government's growth strategy and tax plans next week.

"Though U.S. jobless claims data is positive enough to marginally lift the market, investors need further evidence of a U.S. economic recovery as well as a (political) settlement in Washington," said Hanyang Securities analyst Lim Dong-rak.

U.S. weekly initial claims for unemployment benefits dropped 5,000 last week despite economists' expectations of a rise.

The claims data's four-week moving average, a key gauge that smoothes out weekly volatility, dropped to 308,000, the lowest level since June 2007.

That fall could add to the case that the Fed is safe to go ahead with winding down its bond buying programme later this year. Yet, investors are now cautious not to jump to conclusions.

"The communication between markets and the Fed has broken down since last week. And different Fed officials are saying different things these days, and nobody knows exactly why the Fed did not taper this month after all," said Tohru Yamamoto, chief fixed income strategist at Daiwa Securities.

Indeed, four top Fed officials acknowledged on Thursday the Fed confused markets but they hardly agree on what to do next, with both hawks and doves making their own cases, doing little to ease investors' confusion.

BUDGET SHOWDOWN

Traders also see an impasse in U.S. congressional negotiations over the budget and increasing the federal borrowing limit as likely to cap gains in global shares in the next few weeks.

Republican lawmakers in the House of Representatives refused to give in to President Barack Obama's demands for straight-forward bills to keep the government running beyond Sept. 30, raising the chance of a government shutdown.

While investors see limited economic impact from a short shutdown, that does not bode well for negotiations on the more important issue of raising the debt ceiling.

Failure to act on the ceiling by Oct. 17, when the Treasury will have run out of money, could lead to an unprecedented U.S. sovereign debt default.

The cost of protection against U.S. sovereign default in the credit default swap market has risen to its highest level in four months.

In the currency market, the euro came under pressure amid renewed concerns Italy's fractious coalition government could fall apart.

Italian centre-right deputies supporting former Prime Minister Silvio Berlusconi renewed threats to resign if their leader is expelled from Parliament following a tax fraud conviction.

The euro traded at $1.3480, off a seven-month high of $1.3569 hit last week.

The yen regained some of its lost ground after Japanese Finance Minister Taro Aso said that he is not thinking of lowering the effective corporate tax rate right now, contrary to a media report on Thursday that the government is considering taking such a step. The dollar eased 0.4 percent to 98.65 yen .

The British pound gained 0.4 percent to $1.6092 after Bank of England Governor Mark Carney was quoted by the Yorkshire Post as saying he sees no need for more bond-buying by the central bank given the signs of recovery in the British economy.

Oil prices were soft as fears of an escalation in military conflict in the Middle East eased as the United States and Russia agreed on a draft resolution that would demand Syria give up its chemical arms and Washington and Tehran held the highest-level dialogue since the Islamic revolution in Iran more than three decades ago.

U.S. crude futures dropped 0.5 percent to $102.53 per barrel.

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