TOKYO (Reuters) - Asian shares slipped and the dollar firmed on Tuesday as an unexpectedly strong U.S. factory activity gauge bolstered expectations the Federal Reserve will soon reduce its massive stimulus, while the yen tumbled on speculation of further central bank easing.
The U.S. Institute for Supply Management's index of national factory activity rose in November to its best showing since April 2011, while the pace of hiring also accelerated.
"If the employment and inflation data also beat expectations, questions will get louder about when the Fed will move, and this will see risk currencies in the firing line," said Evan Lucas, market strategist at IG in Melbourne.
Friday's nonfarm payrolls report is expected to provide further clues as to when the Fed will start reducing its monthly $85 billion bond purchases, a major diver of global asset markets in recent years.
U.S. stocks closed lower overnight, while U.S. benchmark 10-year Treasury yields ended near 2.8 percent to a one-week high.
The dollar rose as much as 0.7 percent to a six-month high of 103.13 yen on Monday, also helped by speculation that the Bank of Japan may expand its already massive stimulus. The greenback was steady at 102.94 on Tuesday.
The BOJ is looking to go beyond its $70 billion-a-month bond-buying program, according to officials briefed on the process. Options include major purchases of stock-market-linked funds or other assets riskier than Japanese government bonds, the insiders said.
The yen's weakness looks set to spur Tokyo's Nikkei benchmark .N225 toward a six-month high. Nikkei futures were up 0.4 percent.
MSCI's broadest index of Asia-Pacific shares outside Japan .MIAPJ0000PUS eased 0.1 percent.
Ahead of the Australian central bank's policy meeting, the Australian dollar was steady at $0.9108, not far from a near three-month low of $0.9055 touched on Friday.
The Reserve Bank of Australia is expected to keep interest rates steady for a fourth straight policy meeting, noting the accumulating evidence that past cuts are working to stimulate demand, especially for housing.
"There should be little to shift market expectations away from the nearly flat rate profile for the next 12 months that is currently priced in," analysts at BNP Paribas wrote in a note, adding that they remained positioned for an Australian dollar rebound.
However, a section of the market was wary of the RBA again trying to talk down the currency.
"We may see Governor Glenn Stevens adopt a more dovish tone for monetary policy in order to further assist with the rebalancing of the real economy," said David Song, analyst at DailyFX.
Among commodities, gold edged up 0.1 percent to above $1,220 an ounce, stabilizing after sliding 2.6 percent to their lowest since early July in the previous session on better-than-expected U.S. manufacturing data. <GOL/>
U.S. crude prices added 0.1 percent to around $93.9 a barrel, adding to a 1.2 percent rise overnight.
(Editing by Shri Navaratnam)