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Asian shares rise on bets Fed may stay cautious

[TOKYO] Asian shares got a boost on Tuesday from Wall Street's rise, as investors positioned for the possibility that weaker-than-expected US data will prompt the Federal Reserve to adopt a cautious stance this week.

Crude oil remained under pressure from a global supply glut, after US crude lost as much as 4 per cent in the previous session to hit a six-year low. It was last down about 0.4 per cent at US$43.72 a barrel.

The Federal Open Market Committee is scheduled to begin its two-day policy meeting later on Tuesday, and many analysts had expected the central bank to drop the word "patient" from its formal statement on the timing of its first interest rate increase since 2006. Economists polled by Reuters split almost evenly on whether a rate increase will come in June or later in the year.

But downbeat data on US manufacturing, industrial output and housing on Monday offered the Fed a reason to toe a cautious line on policy. "We expect the Fed to drop the word 'patient' but at the same time it will say its policy will depend on economic data to keep its hand free so it can raise rates when it wants whether it is June or September," said Shuji Shirota, the head of macro economics strategy at HSBC Securities in Tokyo.

MSCI's broadest index of Asia-Pacific shares outside Japan was up 0.7 per cent, after all three major US stock indexes posted gains of over 1 percent on Monday.

Chinese shares rose to near 7-year highs, extending gains on hopes that the Chinese government will loosen policy to bolster its slowing economy Meanwhile, the Fed nerves and the weak US data dented the dollar's rally overnight.

The euro was slightly weaker on the day at US$1.0553, well off Monday's 12-year low of US$1.0457.

Against its Japanese counterpart, the dollar was slightly higher on the day at 121.44, not far from a nearly eight-year high of 122.04 logged one week ago.

Japan's Nikkei stock average was up 0.8 per cent, marking a fresh 15-year intraday high, ahead of a Bank of Japan policy decision later in the session.

The BOJ is widely expected to maintain its aggressive easing programme aimed at spurring sustainable growth and inflation of 2 per cent.

It is also expected to maintain its view that continued improvements in the economy will prompt companies to raise wages and capital expenditure, which should help inflation move towards the 2 per cent goal in the fiscal year beginning next month. "There should be no expectation of any policy tweaks yet (there) still could be a knee-jerk dip in USD/JPY on BOJ insistence that current policy is on track to see inflation rise to the 2 per cent target," Sean Callow, senior currency strategist at Westpac in Sydney, wrote in a note to clients.