* Seoul shares drop 1 pct, Tokyo's Nikkei down 1.2 pct
* Dollar near 2-year low vs euro, 2-week low vs yen
* Aussie, kiwi dollars weak, Indonesia's rupiah rises
By Dominic Lau and Vidya Ranganathan
TOKYO, Oct 25 A stronger yen depressed Japanese
stocks on Friday, while the dollar was hemmed in near a two-year
low against the euro by expectations the U.S. Federal Reserve
will continue its monetary stimulus well into 2014.
Those expectations were tempered, however, by continued
worries over tighter cash markets in China, leading to a
lopsided and selective rally in Asian markets.
The Indonesian rupiah rallied more than 1.5 percent
against the weak dollar, but the Aussie was on the
Korean stock markets fell as investors braced for
some profit-taking in a market that has seen record foreign
buying for 40 consecutive sessions and has pushed the won
to a two-year high this week.
The KOSPI index was down 1 percent even after Samsung
Electronics Co Ltd, the index's largest component,
said its quarterly operating profit surged 26 percent to a new
"A combination of foreign outflows and shadows of China
liquidity concerns are dragging on the market," said Lee
Kyung-soo, an analyst at Shinyoung Securities.
MSCI's broadest index of Asia-Pacific shares outside Japan
eased 0.3 percent, reversing earlier slight
gains. The index fell 0.1 percent on Thursday as rising Chinese
money market rates countered signs of a pick-up in
In Tokyo, the Nikkei share average shed 1.2 percent
as the dollar languished near a two-week low against the yen. It
was on track to suffer its first weekly drop in three weeks.
Although the Japanese quarterly earnings season is still at
an early stage, 70 percent of the 10 Nikkei companies that have
reported so far have missed market expectations, according to
Thomson Reuters StarMine. That compared with 42 percent in the
U.S. S&P E-mini futures were flat in early trade. The
S&P 500 index had advanced 0.3 percent on solid earnings
and expectations that monetary stimulus will be in place for the
foreseeable future after weak data.
U.S. manufacturing output fell for the first time in four
years and the number of new claims for unemployment benefits
fell less than expected last week.
The euro was steady at $1.3796, not far from a
two-year high of $1.3826 touched on Thursday and shrugging off
data showing the pace of growth in euro zone business
unexpectedly eased this month.
"The dollar will not rally without Fed tapering expectations
rising again, but we would not chase EUR/USD higher here, as
rate compression suggests the pair is unlikely to break much
higher," Societe Generale analysts wrote in a note, saying they
favoured Scandinavian and Antipodean currencies into year-end.
"Fed tapering expectations being pushed out into 2014 and
further ECB easing early next year suggest a favourable policy
environment for the FX carry trade. Throw in lower volatility
and seasonality effects, and one has the perfect cocktail for
the carry trade."
Yet the Antipodeans, the Aussie and New Zealand dollars,
were nursing broad losses too as investors quit extended long
positions in the two currencies.
The Aussie was settling around $0.9600, after touching a low
of $0.9582. It had hit a 4-1/2-month peak of $0.9758 on
Wednesday, but is on track for a loss of close to 1 percent for
The kiwi was holding just above a 10-day low at
$0.8310. It had also peaked during the week at a multi-month
high, but now faces a weekly loss of more than 2 percent.
Risky assets had been hit by talk that China was tightening
cash supply to counter inflation risks and curb shadow banking,
which led to a spike in short-term money market rates in China.
China's central bank, which sparked a market panic in June
by engineering a cash crunch, refrained from taking part on
Thursday in scheduled money market operations for the third
It has drained more than 157 billion yuan ($26 billion) from
money markets since the week of Sept. 30. In response, China's
seven-day repurchase rate - a benchmark for
short-term funds - has jumped by 150 basis points this week to
levels around 5 percent.
"In our view, the talk of the Chinese tightening was a bit
of a red herring. It coincided with, and perhaps offered an
excuse to take advantage of the long run up for the
Antipodeans," said Westpac senior strategist Imre Speizer.
"For both, the broader story remains (U.S.) dollar weakness,
and the high-beta currencies to perform well against it."
Against the yen, the dollar stood at 97.23, a shade
off the two-week low of 97.15 yen hit on Wednesday.
The dollar index, which tracks a basket of major
currencies, was little changed.
Gold paused for breath after climbing 1.1 percent on
Thursday, while U.S. crude prices added 0.3 percent to
about $97.35 a barrel, moving away from a 3-1/2 month low of
$95.95 touched in the previous session.