S.Korea, Philippines lead Asian shares lower ahead of Fed meeting

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  • Sharp Wall Street falls spill over to Asian stocks
  • Strong yuan stabilise Asian currencies
  • South Korea's Q4 GDP data awaited for Tuesday

Jan 24 (Reuters) - South Korea and the Philippines led losses among Asia's emerging stock markets on Monday, as risk appetite waned on fears that the U.S. Federal Reserve could adopt a more aggressive stance on policy tightening at its January meeting later this week.

Equities in Seoul (.KS11) and Manila (.PSI) fell by between 1% and 1.5%, while shares in Mumbai (.NSEI), Jakarta (.JKSE) and Kuala Lumpur (.KLSE) also dropped after major indexes on Wall Street fell sharply on Friday.

Markets in Asia traded cautiously on Monday ahead of the Fed's rate-setting Federal Open Market Committee, where some analysts have started to speculate that it is possible, though unlikely, that it will raise interest rates for the first time since the pandemic began.

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Adding to the caution were concerns about a possible Russian attack on Ukraine with the U.S. State Department pulling out family members of its embassy staff in Kyiv.

"Central bankers in Asia will certainly pay attention (to the Fed meeting). The harder the Fed hits the brakes, the more monetary officials in the region will have to swerve to avoid skidding off the road," Frederic Neumann, HSBC's co-head of Asian economics research said in a note.

Central banks in Asia have not been pressured to pursue interest rate hikes as aggressively as their European peers.

A stable yuan has provided some resilience for regional currencies amid broad dollar strength. Partly as a result, inflation, while elevated, has not veered out of control in most Asian economies.

However, the prospect of higher U.S. interest rates has left regional policymakers needing to strike a balance between protecting their economies' recovery while maintaining stability and stemming potential outflows that could weaken their current account surpluses.

The dollar index, which measures the greenback against six major peers was steady at 95.722 on Monday morning, while the yuan gained 0.1%.

Asian currencies were largely mixed. Indonesia's rupiah and the Malaysian ringgit inched higher, while the Thai baht and Philippine peso dropped.

"The risk-off in equities, on Fed and Russia-Ukraine concerns, does not appear to be translating to significant bouts of aversion in Asian FX at this point," analysts at Maybank said in a note.

Meanwhile, a Reuters Poll found that South Korea's economy likely accelerated in the last quarter, buoyed by strong exports and investments, but an economic slowdown in China and surging COVID-19 cases pose a significant risk. read more

HIGHLIGHTS

** Indonesian 10-year benchmark yields are up 1.1 basis points at 6.436%

** South Korean shares (.KS11) fall as much as 1.9%, on track for their worst session since November last year

** China Evergrande (3333.HK) shares jump more than 13%, a day after the embattled developer said it would appoint an official from a unit of China Cinda Asset Management (1359.HK) to its board read more

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Reporting by Harish Sridharan in Bengaluru; Editing by Simon Cameron-Moore

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