(Corrects lead to say yen hit lowest level)
* MSCI Asia ex-Japan, Nikkei set for best year since 2005
* Yen hits lowest since Aug 2011 vs dollar
* Japan steps up stimulus drive, data undershoots forecasts
* U.S. strives for last-ditch effort to avoid fiscal crisis
By Chikako Mogi
TOKYO, Dec 28 The yen hit its lowest point in
more than two years on Friday, on strong expectations of drastic
monetary easing, underpinning Japanese equities, while Asian
shares were capped by worries the United States may run out of
time to avoid a fiscal crunch.
MSCI's broadest index of Asia-Pacific shares outside Japan
was up 0.2 percent. It has gained about 18
percent this year, a sharp turnaround from an 18 percent plunge
Australian shares rose 0.6 percent and were on track
to post their strongest annual gain since 2009, with resources
supported by rising iron ore prices. South Korean shares
opened 0.1 percent lower.
European shares were nearly flat overnight, and U.S. stocks
marked a fourth straight session of losses.
"A U.S. fiscal deal is unlikely to be reached this year, but
the stock markets will not fall sharply because a partial deal
could be reached early next year," said Laurence Kim, an analyst
at Woori Investment & Securities.
U.S. lawmakers on Thursday gave themselves a last chance to
prevent the United States from plunging off a "fiscal cliff" by
setting up a late session in Congress a day before taxes are due
to rise for most working Americans.
The so-called fiscal cliff, a $600 billion combination of
higher taxes and spending cuts, threatens to push the world's
largest economy into recession, and stamp out fragile signs of
As well as being deadline day for the fiscal cliff, Dec. 31
is the date the federal government is set to reach its $16.4
trillion debt limit. The Treasury will have to take measures to
buy time for the government to approve a rise in the debt
A similar political stalemate over raising the federal debt
limit in the summer of 2011 raised fears over a U.S. default,
and prompted Standard & Poor's to strip the U.S. of its
top-notch credit rating, causing a turmoil in financial markets.
U.S. crude futures rose 0.6 percent to $91.38 early
on Friday after easing overnight on concerns that a failure to
reach a budget compromise would hurt U.S. demand for oil.
Asian bond issuance jumped to $133.8 billion so far this
year, eclipsing the previous year's tally of $76.34 billion, as
retail investors stepped up purchases of the region's corporate
bond. Those bonds have returned nearly 20 percent this year,
outshining Asian equities.
JAPAN REMAINS IN FOCUS
Under the leadership of Prime Minister Shinzo Abe who took
office earlier in the week, Japan is speeding up efforts to turn
around its economy, battered for decades by its strong currency
and deep-rooted deflation.
A survey on Friday showed Japanese manufacturing activity
contracted in December at its fastest pace in more than three
Other data were also grim, with core consumer prices falling
in November and industrial output plunging 1.7 percent in
November from October.
Abe's repeated calls for "unlimited" monetary easing and
policies aimed at reducing the yen's strength have bolstered
expectations of a sustained period of yen weakness. This has
lifted the mood in Japanese stocks as a weaker yen improves
earnings prospects for the country's exporters.
The benchmark Nikkei average opened up 0.8 percent
after closing at its highest since March 2011 on Thursday. It is
on track to log its best yearly gain since 2005.
The dollar climbed to its highest since August 2010 of
86.64 yen on Friday. The yen is on track for a drop of
12 percent this year, its steepest since 2005. The yen also fell
to a 17-month low against the euro at 114.66 yen on
EBS on Thursday.
The Australian dollar hit a 20-month peak against the yen
of around 89.83 yen, according to Reuters data.
The Japanese government will compile spending requests for a
stimulus package on Jan. 7 and finalise the proposal shortly
thereafter as Abe tries to quickly enact his agenda of increased
public works spending to boost the economy.
(Additional reporting by Umesh Desai in Hong Kong and Hyunjoo
Jin in Seoul; Editing by Daniel Magnowski)