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Asia: Shares poised for weekly loss, Fed talk lifts dollar

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[SINGAPORE] Asian shares edged up on Friday but were on track for a weekly loss, while the dollar was poised for a winning week on bets the US Federal Reserve could raise rates as early as next month.

MSCI's broadest index of Asia-Pacific shares outside Japan was up 0.6 per cent, though still down 0.3 per cent for the week and off 4.2 per cent so far this year.

Japan's Nikkei stock index erased earlier losses to trade up 0.2 per cent, extending gains for the week to 1.6 per cent as the yen recoiled against the resurgent dollar.

Chinese stocks also rose with both the CSI 300 and the Shanghai Composite indices up 0.1 per cent, on track for weekly gains of 0.3 per cent and 0.7 per cent, respectively. Hong Kong's Hang Seng added 0.9 per cent, on track for a rise of 0.5 per cent for the week.

Wall Street fell on Thursday with the Dow Jones industrial average and the S&P 500 both touching roughly two-month lows before paring losses.

The New York Fed's William Dudley, a permanent voting member of the central bank's rate-setting committee, said there was a strong sense among Fed officials that markets were underestimating the probability of policy tightening and that the bank was on track for a rate hike in June or July.

Mr Dudley said he was "quite pleased" investors had apparently increased bets that a rate hike would come soon. "The Fed has regained the upper hand here," strategists at Brown Brothers Harriman said. "Moreover, the response by the dollar and the interest rate markets suggests monetary policy still matters." Mr Dudley's comments came a day after minutes of the Fed's April meeting revealed that most policymakers felt a rate increase might be appropriate as early as June.

Markets are pricing in a 32 per cent chance of a rate hike in June, according to the CME FedWatch tool, up from 15 per cent on Tuesday. A majority now expect a rate hike at the July meeting.

"Despite the increasing certainty (of a rate move), risk appetite stayed on the side-lines. US and European equities were sold," Bernard Aw, market strategist at IG in Singapore, wrote in a note. "Investors are worried that if there is a rate hike in June, the economy may not be able to support it." The dollar index, which gauges the greenback against a basket of other major currencies, was steady at 95.259 after reaching as high as 95.502 overnight, its loftiest since March 29. The index is poised for a 0.7 per cent weekly gain.

The dollar also held firm against the yen at 109.985 , up 1.2 per cent for the week. It hit 110.39 overnight, its highest since April 28, before the sell-off in equities led some investors to seek the safe-haven Japanese currency.

The euro was also little changed US$1.12080, nursing its drop to a more than seven-week low of US$1.1180 overnight. It was down 0.9 per cent for the week.

The sterling advanced as strong retail sales data reduced chances of an interest rate cut by the Bank of England, and polls showed growing support for Britain to remain in the European Union.

The pound was holding steady at US$1.4602 after touching a 3-1/2-week high of 1.4663 overnight.

Currencies are likely to be a topic at the G7 finance leaders' meeting in Japan on Friday and Saturday. The meeting could expose a rift on issues ranging from currency to fiscal policies within the group of advanced economies.

Continuing fears about supply outages in Canada and Nigeria bolstered crude oil even as the prospect of a US rate hike prompted some investors to take profits after recent gains.

US crude added 1.3 per cent to US$48.78 a barrel, up 5.6 per cent for the week, while Brent crude advanced 0.8 per cent to US$49.25, up nearly 3 per cent for the week.

The dollar's gains weighed on gold, setting the precious metal on track for its biggest weekly decline in eight weeks.

Spot gold rose 0.1 per cent after losing 2 per cent over the previous two sessions, on track for a drop of 1.4 per cent for the week.

REUTERS