GLOBAL MARKETS-Asian shares skid, dollar struggles to keep traction

Tue Feb 4, 2014 2:24am EST

* MSCI Asia ex-Japan tumbles to fresh five-month low

* Nikkei sheds more than 4 pct to log worst day since June

* Dollar touches two-month low against yen

* Aussie rallies after RBA drops easing bias, holds steady

By Lisa Twaronite

TOKYO, Feb 4 (Reuters) - Asian shares skidded on Tuesday while the dollar struggled to keep its footing, after disappointing data cast doubt on the strength of the U.S. economy and gave investors little reason to hope for stability in emerging markets after their recent rout.

MSCI's broadest index of Asia-Pacific shares outside Japan fell about 1.4 percent, touching its lowest level since early September at one point.

The gloom was likely to continue into the European session, with financial spreadbetters expecting Britain's FTSE 100 to open 36 to 44 points lower, or down as much as 0.7 percent; Germany's DAX to open 77 to 89 points lower, or down as much as 1 percent; and France's CAC 40 to open 29 to 34 points lower, or down as much as 0.8 percent.

"With the main European indices down around 7 percent, chatter on trading desk is about whether we are in for a '10 percent' correction," Jonathan Sudaria, a dealer at Capital Spreads in London, said in emailed comments.

"The bears have a seemingly easy target within reach and the remaining bulls will want to get out of the way so talk of a correction looks to be turning into a self-fulfilling prophecy," he added.

Hong Kong shares, reopening on Tuesday after the Lunar New Year holiday, caught up with plunges elsewhere. Mainland Chinese markets remained shut for the holiday and will reopen on Friday.

"Experienced emerging market investors would be looking at this selldown with great interest, looking to pick up quality names on the dip, but they are still in the minority for now," said Erwin Sanft, Standard Chartered's Hong Kong-based China equity strategist.

Japan's Nikkei stock average ended down 4.2 percent in the highest volume since June, marking its worst day since that month. It extended its declines into a fourth session, breaking below the key technical 200-day moving average for the first time since November 2012 and bringing losses for this year to around 14 percent.

That makes it the worst performer among major developed markets since the start of 2014, with the S&P 500 down 5.8 percent and the pan-European FTSEurofirst 300 down 3.3 percent. The sharp drop came even after the Bank of Japan bought 123 billion yen ($1.21 billion) worth of exchange traded funds this year as of Feb. 3 to support the equities market.

The yield on benchmark 10-year U.S. Treasury notes stood at 2.589 in Asian trading, after falling as low as 2.582 percent on Monday, the lowest since Nov. 1.

Data showing U.S. manufacturing activity slowed sharply last month dealt a heavy blow to markets already worried that the U.S. Federal Reserve's decision to taper its asset purchases would lead to capital flight from emerging markets.

January's sharp fall in U.S. output came on the back of the biggest drop in new orders in 33 years, while construction spending barely rose in December, suggesting the U.S. economic recovery is more tenuous than some investors had believed.

The data pushed the benchmark S&P 500 index into its worst single-day drop in seven months, while the CBOE volatility index soared 16.5 percent to close at its highest level since December 2012.

In late Asian trading, the dollar took back some lost ground, adding about 0.1 percent to buy 101.05 yen, while the euro rose 0.1 percent on the day to 136.75 yen. But both fell to their lowest levels since late November earlier in the Asian session.

The Australian dollar rallied after the Reserve Bank of Australia dropped its easing bias in the first policy review of the year, encouraging markets to increase the chance of an interest rate hike.

The Aussie was last up 1.7 percent at $0.8895 after the RBA also toned down its rhetorical campaign for a weaker currency.

On the commodities front, U.S. oil edged up slightly to $96.63 a barrel, after plunging $1.09 on Monday, as the weaker-than-expected U.S. factory data fanned fears about demand in the world's largest economy.

March Brent crude eased slightly to $105.91 a barrel after two straight sessions of losses.

The stock market selloff added to the safe-haven appeal of gold, with spot gold steady on the day at $1,258.84 an ounce, after gaining 1.1 percent on Monday.

But three-month copper on the London Metal Exchange edged down to $7,020 a tonne after earlier hitting a two-month low and on track for its 10th straight losing session.

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

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