Asia: Stocks slip, dollar supported after Yellen's rate hike comments

[TOKYO] Asian stocks slipped and the dollar advanced on Thursday after hawkish comments from Federal Reserve Chair Janet Yellen reinforced the case for an interest rate hike later this month.

Japan's Nikkei lost 0.3 per cent, moving in a tight range as a wait-and-see mood prevailed ahead of the European Central Bank's policy decision later in the day.

Fighting stubbornly low inflation, the ECB is expected to deliver a variety of measures that could include a deposit rate cut and changes to its asset-buying programme. "The ECB's decision will likely set the direction for the Japanese market tomorrow and beyond, but it's also true that the market is seen overbought recently," said Hikaru Sato, a senior technical analyst at Daiwa Securities in Tokyo.

Australian shares fell 0.6 per cent and South Korea's Kospi shed 1 per cent.

Shanghai shares bucked the trend and were last up 0.1 per cent, brushing aside a Caixin/Markit Purchasing Managers'Index showing growth in China's services sector cooling in November.

MSCI's broadest index of Asia-Pacific shares outside Japan fell 0.6 per cent taking a lead from Wall Street, which fell overnight on Yellen's comments and falling crude prices that hit energy shares.

Yellen said on Wednesday she was "looking forward" to a US interest rate hike that will be seen as a testament to the economy's recovery from recession.

Yellen's comments come after expectations for a Fed rate hike at its Dec. 15-16 policy meeting were slightly shaken on the back of poor manufacturing data released earlier in the week.

However, faith in the US economy was partially restored after Wednesday's ADP data showed private employers added a larger-than-expected 217,000 jobs in November.

The dollar index advanced to a 12-1/2-year high of 100.51 following Yellen's comments and the upbeat data. It last stood at 100.12.

The euro dipped 0.2 per cent to US$1.0595. The markets were braced for the ECB potentially delivering long-expected monetary easing measures. "There is great potential for euro volatility as the ECB announces its policy decision, followed by the press conference by President (Mario) Draghi starting 45 minutes later," wrote Sean Callow, a senior strategist at Westpac. "Draghi and selected colleagues have clearly signalled that there is sufficient risk of undershooting the ECB's inflation target to warrant further loosening of monetary settings." While the prospects of further ECB easing dogged the euro, expectations of added stimulus have lifted European stocks. The pan-European FTSEurofirst 300 index touched a 3-month high this week.

In commodities, crude oil bounced modestly on bargain hunting following a tumble overnight prompted by surging US stockpiles and a stronger dollar.

US crude was up 0.5 per cent at US$40.13 a barrel after tumbling 4 per cent overnight. Crude was still capped with Opec widely expected not to opt for a production cut at Friday's meeting despite a global supply glut.

Spot gold languished close to US$1,050.25 an ounce, its lowest since February 2010. Higher interest rates would diminish the allure of non-yielding gold and a stronger greenback makes the dollar-denominated metal more expensive for buyers.

Industrial metals also remained under pressure amid global oversupply and shrinking Chinese demand, with spot iron ore prices plumbing 10-year lows this week.

Three-month copper on the London Metal Exchange was down 0.5 per cent at US$4,542 a tonne. Copper edged back towards a 6-year low of US$4,443.50 touched late last month with pleas for Chinese government intervention providing little tonic.

China's major copper producers have asked the government this week to buy the metal, joining a growing chorus in the country's base metal industry that is pleading for state intervention.

REUTERS