Asia: Stocks drop as US dollar holds biggest slump in a month

[SYDNEY] Asian equities pared their biggest weekly gain in six weeks as investors paused for breath after a rally fueled by optimism that the Federal Reserve's pace of tightening will be gradual. The dollar held its biggest slump in a month, while oil languished near a three-month low.

The MSCI Asia Pacific Index lost 0.3 per cent as Japanese shares led declines, with exporters dragged lower by the yen's advance. The Bloomberg Dollar Spot Index maintained most of the last session's 0.7 per cent retreat. Crude traded at US$40.59 a barrel. Treasuries rose Thursday as investors showed few signs of unease after the US central bank signaled it's likely to raise interest rates next month.

"The Fed has made it clear that its base case is for a lift-off in December and if they were to break that, it would be a huge, market-moving event," said Evan Lucas, Melbourne-based strategist at IG Ltd.

"It's been very positive for markets this week, with equities responding favorably to this macro picture." Stocks Futures on the Standard & Poor's 500 Index slipped 0.1 per cent, with the underlying gauge up 2.9 per cent in the past four days.

Carmakers were the biggest drags on Japan's Topix index, which slid 0.5 per cent on Friday. The measure is poised for a fifth straight weekly advance. South Korea's Kospi index fluctuated, as did Australia's S&P/ASX 200 Index. New Zealand's S&P/NZX 50 Index rose 0.5 per cent.

Futures on Hong Kong's Hang Seng Index added 0.1 per cent in most recent trading, while those on the Hang Seng China Enterprises Index rose 0.2 per cent.

The US benchmark gauge lost 0.1 per cent on Thursday, after fluctuating throughout the day, as UnitedHealth Group Inc.'s profit warning rattled the health-care sector and oil's descent sank energy producers. Shares surged a day earlier as Fed minutes showed officials largely agreed the pace of tightening would be gradual.

Currencies The yen was at 122.89 per dollar after gaining 0.6 per cent on Thursday as the central bank left monetary policy unchanged and said "inflation expectations appear to be rising." Governor Haruhiko Kuroda, who unleashed unprecedented monetary stimulus at the Bank of Japan in 2013 and doubled down on it last year, is done expanding his efforts, according to an increasing number of economists.

Kuroda is scheduled to speak on Friday, while reports on Malaysian inflation, Taiwan's export orders and a Chinese economic index are also due.

The Bloomberg Dollar Spot Index, which tracks the US currency versus 10 major counterparts, added 0.1 per cent on Friday. The greenback's Thursday retreat saw it slide most against the currencies of resources producers including New Zealand, Brazil and Australia. Commodity currencies have tumbled this year amid a collapse in raw materials prices and on concern the first US rate increase since 2006 would further dent global growth.

"Traders are pulling back from their long dollar trades for now, given speculation that the Fed's tightening cycle may be more gradual than the market had previously priced," said Imre Speizer, markets strategist at Westpac Banking Corp. in Auckland.

"For now, the unwinding of positions built around the Fed tightening is dominating concerns about commodity weakness. I don't think it will last." Commodities Oil headed for a third weekly decline amid signs a global glut will be prolonged as US crude stockpiles capped the longest run of gains in seven months. West Texas Intermediate futures dropped below US$40 a barrel Wednesday for the first time since August.

Gold held an advance from a five-year low as Fed Vice Chairman Stanley Fischer said that US policy makers have done their best to prepare international markets for higher borrowing costs. Bullion for immediate delivery was at US$1,081.77 an ounce from US$1,082.21 on Thursday, when prices gained 1.1 per cent, according to Bloomberg generic pricing.

BLOOMBERG