GLOBAL MARKETS-Asian shares tested by Fed nerves, euro awaits ECB

Thu Dec 5, 2013 1:23am EST

* Asian shares subdued after soft Wall St, Nikkei off again

* Euro holds it ground before ECB, eyes on inflation forecasts

* Strong U.S. jobs numbers heighten Fed angst ahead of payrolls

* European stocks seen opening softer

By Wayne Cole

SYDNEY, Dec 5 (Reuters) - Asian markets were mostly under water on Thursday as persistent speculation about the fate of U.S. stimulus lifted bond yields globally, while Japanese shares struggled to find their footing after a spill.

Moves were modest ahead of central bank meetings in the European Union and UK, and the latest read on U.S. economic growth, not to mention the payrolls numbers on Friday.

European stocks were also set for a subdued start with financial spreadbetters expecting opening losses of roughly 0.1 to 0.2 percent for Germany's DAX, France's CAC and Britain's FTSE.

After suffering its biggest one-day fall in six weeks on Wednesday, the Nikkei ended down another 1.5 percent, retreating further from this week's six-year closing high.

"Starting from two days back, people are starting to get quite nervous about the market," a Tokyo-based senior trader at a European bank said.

The dollar has also faded below 103.00 yen, giving investors an excuse to book profits on the market's recent hefty gains. The Nikkei is still up 8 percent since early November, and 46 percent on the year so far.

Offshore funds appeared to be cheering for the market. Foreigners bought a net 368 billion yen worth of Japanese shares in the week through Nov. 30, on top of 709 billion yen in the week before that.

Caution ruled elsewhere in the region, with MSCI's broadest index of Asia-Pacific shares outside Japan off 0.4 percent, and Shanghai down 0.2 percent.

Australia's main index shed 1.4 percent as Qantas Airways tumbled as much as 15 percent after the carrier issued profit warning and announced job cuts.

There was nothing but indecision out of Wall Street where the Dow Jones industrial average edged down 0.16 percent, while the S&P 500 eased 0.13 percent.

Shares had taken a hit after a strong reading on private hiring led to speculation that payrolls could also be upbeat and perhaps hasten the day when the Federal Reserve starts trimming its asset buying.

Other data on services and housing was more mixed, but the risk was enough to leave 10-year Treasury yields near three-month highs at 2.84 percent.

Ironically, a sustained increase in long-term yields is exactly what the Fed is trying to avoid, so the rise argues against a start of tapering at this month's policy meeting.

ECB LOOMS

The lift in yields helped the U.S. dollar regain some ground on the yen to stand at 102.07, up from a low of 101.82. It may get further support if U.S. gross domestic product data gets revised up later Thursday.

A major mover was the Canadian dollar which sagged to 3-1/2-year lows after the Bank of Canada issued a dovish policy statement, highlighting the risks of undesirably weak inflation.

The euro was a touch firmer at $1.3605, having bounced from a trough of $1.3527 on Wednesday. Service sector data had showed activity in Italy and France shrinking in November but expanding in Spain and Germany, highlighting the divergence in the bloc.

There was more good news for Spain as Moody's upgraded its credit outlook to stable from negative, citing a rebalancing of and a brighter medium-term view for the country's economy.

Investors were now looking ahead to a policy meeting by the European Central Bank. While the consensus is that the central bank will not announce any new measures, markets are nervous after being taken off guard by November's rate cut.

"The focus will be on the presentation of staff projections for 2014 and 2015, and in particular on inflation forecasts," said Philippe Gudin, an analyst at Barclays.

If the region's recovery continues, the ECB may be done easing for this cycle.

"Should economic activity fail to gain momentum or deflation concerns materialise, we think further monetary easing would be decided," added Gudin. "Although this is not our baseline scenario, we think the probability is non-negligible."

In commodity markets, spot gold edged back to $1,239 an ounce, giving up some of Wednesday's 1.7 percent rally.

U.S. crude added another 12 cents to $97.32, on top of a 1.2 percent rally on Wednesday after data showed domestic crude stocks fell by 5.6 million barrels, snapping 10 straight weeks of builds. Going the other way, Brent crude eased 27 cents to $111.56 a barrel.

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