* MSCI Asia ex-Japan, Nikkei both turn negative
* Yen firms a tad on "cliff" woes but pinned near lows
* U.S. House of Representatives may reopen Dec. 27
* Oil, gold, euro slump as fears of budget crunch grow
* European shares likely to decline
By Chikako Mogi
TOKYO, Dec 21 Asian shares slid on Friday after
a Republican proposal to deal with a U.S. fiscal crunch failed
to get enough support, deepening uncertainty over the U.S. can
avert the "fiscal cliff" of automatic spending cuts and tax
increases set to start Jan. 1.
"Markets disliked signs of further delay in talks, with the
risk that a deal may not be reached by the end of the year
deadline," said Yuji Saito, director of foreign exchange at
Credit Agricole in Tokyo. "It clearly hit risk sentiment."
The U.S. House of Representatives will adjourn until after
Christmas, Republican Representative Peter Roskam said on
Thursday, after House Speaker John Boehner's proposed tax bill
designed to avert the fiscal cliff failed to pass.
U.S. stock index futures fell sharply. S&P 500 stock futures
slipped 1.7 percent, while Dow Jones stock futures
and Nasdaq futures both lost 1.5 percent.
European shares will likely drop also, with financial
spreadbetters predicting London's FTSE 100, Paris's
CAC-40 and Frankfurt's DAX will open down as
much as 0.6 percent.
The worrying U.S. political news sparked selling in Asian
shares, with MSCI's broadest index of Asia-Pacific shares
outside Japan wiping out earlier gains to tumble
0.7 percent. The index was on track to end the week down 0.6
percent, the first weekly loss in five weeks.
Markets broadly had been supported by optimism that U.S.
lawmakers would avoid the fiscal cliff, which threatens to
derail the U.S. economy and drag down global growth with it.
Boehner's proposal was aimed at extracting concessions from
the White House, which had threatened to veto it, and advance
talks closer to a deal.
The Republican-led U.S. House of Representatives, which
abruptly recessed on late Thursday, may return as soon as Dec.
27 with a yet-to-be-decided new plan, said a senior party aide.
"This is a major setback for a Fiscal Deal compromise
between the two parties. I would say that chances of a deal are
down to maybe 40 percent from 65 percent -- despite the
dysfunction in Washington D.C," said Douglas A. Kass, founder of
hedge fund Seabreeze Partners Management Inc.
Risk assets were sold off, from shares, oil to currencies
such as the Australian dollar and the euro. The yen firmed
slightly, though it was pinned near multi-month lows versus the
dollar and the euro on expectations for more aggressive Bank of
Japan easing next year to drive the economy out of deflation.
"The delay in resolving the U.S. fiscal cliff problem is
raising concern as the market expected some sort of positive
direction out of the talks by the end of the year," said Fujio
Ando, a senior managing director at Chibagin Asset Management.
Safe-haven government bond prices rose, with U.S. 10-year
Treasury yields moving away from an 8-week high hit this week,
falling about 6 basis points to 1.74 percent.
Benchmark 10-year Japanese government bond yields
also ticked down half a basis point to 0.765 percent.
Inflows into U.S. Treasuries underpinned the U.S. dollar,
which inched up 0.1 percent against a basket of major currencies
Jim Barnes, senior fixed income manager at National Penn
Investors Trust Co. in Wyomissing, Pennsylvania, saw Treasuries
continuing to gain once U.S. markets open later, but expected a
correction by the end of the day.
"Treasury yields will likely fall Friday morning and will
begin to reverse course in the afternoon as investors become
more optimistic a deal will be reached," Barnes said.
"So far, the market has been handling setbacks in
negotiation talks very well. With still a little bit of time
left on the clock, this time around will be no different."
Along with uncertainties surrounding the future of U.S.
budget talks, a firmer dollar also weighed on dollar-based
The euro fell 0.3 percent to $1.3206, off an
8-1/2-month high of $1.33085 touched on Wednesday.
U.S. crude futures dropped more than $1 to $89.10 a
barrel, but oil was still on track for its biggest weekly gain
Spot gold extended losses to near a four-month low
touched on Thursday, and was last down 0.1 percent to $1,644.90
an ounce. Gold remained on course for a 12th annual growth on
rock-bottom interest rates, concerns over the euro zone
financial stability and diversification into bullion by central
YEN GAINS SLIGHTLY
Anxieties over the U.S. budget negotiations also took their
toll on Japan's Nikkei average, which had been supported
by a weaker yen. The Nikkei gave up all of earlier gains to
close down 1 percent and below the key 10,000 mark it reclaimed
for the first time since early April on Wednesday.
The dollar was down 0.4 percent to 84.02 yen, moving
away from a 20-month high of 84.62 yen hit on Wednesday.
The euro slumped 0.7 percent to 110.91 yen also
off a 16-month high of 112.59 yen reached on Wednesday.
The yen was kept under pressure after the Bank of Japan
further eased monetary policy as expected on Thursday, with
investors anticipating that the central bank will be persuaded
to pursue more drastic measures next year.
The incoming prime minister, Shinzo Abe, has called for
bolder action by the central bank to help bring Japan out of
For all the fears of a fiscal cliff debacle to come, several
data series showed the United States remained on a recovery
track, helping to underpin the dollar.