Asia closing the year on a cautious note

[SYDNEY] Asian markets were set for a cautious close to 2014 on Wednesday as worries about Greece's future in the euro zone served as an excuse to take profits on popular trades.

The US dollar also ran into selling on its recent gains, while the euro got no respite as a host of European bonds yields fell to all-time lows after a shockingly sharp fall in Spanish inflation.

Trade was thinned by holidays in Japan, Thailand, South Korea and the Philippines, while many markets in Europe are either shut or finish early on Wednesday.

Among the scraps of data and indicators due in Asia is a final measure of December Chinese manufacturing activity from HSBC, though it is unlikely to cause a fuss unless wildly out of line with the preliminary reading of 49.5.

Australia was one of the few Asia-Pacific markets open and its main index edged up 0.1 per cent. MSCI's broadest index of Asia-Pacific shares outside Japan was little changed and is ending the year almost exactly where it started.

The Nikkei fared better with a rise of 7.1 per cent for the year, thanks chiefly to the Bank of Japan's extraordinary campaign of asset buying which lowered the yen while fattening exporters' profit margins.

The stand-out performer was China, where the CSI300 index of the largest listed companies in Shanghai and Shenzhen looked set to end 2014 with gains around 48 per cent. Almost all of that came in the last couple of months, as hopes for more aggressive policy stimulus boosted banks and brokers.

On Wall Street, the S&P 500 eased 0.49 per cent on Tuesday but was still on track for a third straight year of double-digit returns. The Dow fell 0.31 per cent, while the Nasdaq lost 0.61 per cent.

In currencies, the dollar eased on the safe haven yen to stand at 119.42 from Tuesday's peak of 120.69.

The euro was undermined by sliding European yields amid intense speculation the European Central Bank will have to start buying government bonds to avert deflation.

The single currency was stuck at US$1.2160 having touched a 29-month trough of US$1.2123.

German yields hit a new record low on Tuesday, ending 2014 with their biggest annual fall in six years, while yields in Italy and Spain also reached historic lows.

Data out on Tuesday showed Spanish consumer prices fell in December at their fastest rate since July 2009, largely as a result of cheaper oil.

The steep decline made it more likely that inflation for the entire euro zone while slip into negative territory when the data are released on Jan 7, far below the ECB's target of just under 2 per cent.

There was little sign as yet of an end to oil's stunning decline after it hit lows last seen in May 2009. Brent was down 37 US cents at US$57.51 on Wednesday, while US crude lost 36 US cents to US$53.76 a barrel.

REUTERS