TOKYO Asian shares got off on the back foot on Monday, as crude extended gains and tested nine-month highs on fears the insurgency in Iraq could spread - disrupting oil exports.
Sunni insurgents seized a mainly ethnic Turkmen city in northwestern Iraq on Sunday, while the United States boosted security for its diplomatic staff in Baghdad and said some personnel had evacuated from the embassy.
Brent LCOc1 rose about 0.5 percent to $113.07 per barrel, after touching $114.69 on Friday, its highest since September. Brent added more than $4 last week. U.S. crude rose about 0.4 percent to $107.34, approaching Friday's nine-month high of $107.68.
Gold hit its highest in nearly three weeks as the Iraqi crisis supported the metal's safe-haven appeal, rising about 0.1 percent to $1,277.80 an ounce after hitting $1,278.74 earlier in the session - the highest since late May.
MSCI's broadest index of Asia-Pacific shares outside Japan was down about 0.1 percent, moving away from a three-year high hit a week ago.
Japan's Nikkei stock average dipped 0.9 percent, weighed down by fears of higher materials costs, and off last week's three-month highs.
"Investors aren't expecting material costs will rise soon and have an immediate impact on companies' profits, but they are wary of these risks in the longer run," said Hikaru Sato, a senior technical analyst at Daiwa Securities. "The geopolitical concerns are lowering risk appetite."
Wall Street stocks edged higher on Friday, but ended the week with modest losses.
The dollar JPY slipped about 0.3 percent to 101.76 yen, moving back toward a two-week low of 101.60 yen marked on Thursday. The euro shed 0.2 percent to buy 137.79 yen.
Against the greenback, the euro was slightly higher on the day at $1.3541.
The dollar got little help from U.S. Treasury yields, which edged down as prices rose in response to waning risk appetite. The yield on benchmark 10-year Treasuries stood at 2.586 percent, down from Friday's U.S. close of 2.604 percent.
For further clues on the direction of U.S. rates, investors will be focusing on the U.S. Federal Reserve this week as it concludes its policy meeting on Wednesday. Markets will be watching for any signals on when the U.S. central bank might begin hiking interest rates.
"Key points are if Fed Chair (Janet) Yellen upgrades her view on the economic view in light of recent economic indicators and if the central bank raises its yield forecast, which would reignite expectations for earlier rate hikes," said Junichi Ishikawa, market strategist at IG Securities in Tokyo.
"Whether geopolitical risks have any currency impact depends on how the situation in Iraq and Ukraine impacts the equity markets, but so far their reaction appears limited," he said.
Other data in focus this week is China's latest report on foreign direct investment on Tuesday, and then house price figures on Wednesday. Investors would be concerned if the latter were to show a slowdown in property price growth, raising questions about the outlook for that sector.
(Additional reporting by Ayai Tomisawa and Shinichi Saoshiro; Editing by Eric Meijer)