July 30, 2014 / 12:32 AM / 5 years ago

Asian shares hit six and a half year high, dollar steady before Fed

TOKYO (Reuters) - Asian shares touched a six-and-half-year peak while the dollar held steady against the euro on Wednesday, as investors awaited key U.S. data as well as a U.S. Federal Reserve meeting that some believe might result in a more hawkish policy outlook.

Pedestrians cross a road in front of an electronic board showing various stock prices outside a brokerage in Tokyo July 22, 2014. REUTERS/Yuya Shino

In addition to second-quarter U.S. growth figures, investors awaited the conclusion of the Fed’s two-day policy meeting and its policy statement scheduled to be released at 2 p.m..

The Fed will not be updating its economic forecasts and Chair Janet Yellen will not hold a news conference, keeping investors’ focus squarely on the statement.

MSCI’s broadest index of Asia-Pacific shares outside Japan .MIAPJ0000PUS shrugged off early losses to rise 0.5 percent to its highest level since January 2008, while Australian shares climbed to their highest level since June of that year.

“In the end it’s really part of a global rally, it’s been underpinned by the U.S., where economic growth is seen to be improving albeit slowly, and earnings growth in Australia looks reasonable at this stage,” said Matthew Sherwood, head of investment market research at Perpetual in Sydney.

Japan’s Nikkei stock average .N225 added about 0.3 percent, as upbeat earnings offset weaker-than-expected industrial production data which cast doubts over the strength of an expected third-quarter economic recovery.

Output fell 3.3 percent in June, the fastest rate since the devastating earthquake and tsunami in March 2011, as companies put on the brakes due to a pile-up in inventories. But manufacturers expect output to rise in the coming months. [ID:nT9N0P602N]

“Macro funds including overseas pension funds are shifting to Japanese shares from U.S. shares as valuations of Japanese shares are cheaper,” said Kyoya Okazawa, head of global equities at BNP Paribas.

On Wall Street overnight, a weak outlook from courier company United Parcel Service (UPS.N) triggered a broad selloff, pushing the S&P 500 .SPX below its 14-day moving average for a second straight day.

Still, almost 70 percent of the S&P 500 companies that have reported already have topped earnings expectations, according to Thomson Reuters data, which is well above the long-term average of 63 percent. More than half of companies have reported results, and over 63 percent of them have topped revenue forecasts, above the long-term average of 61 percent.


Later on Wednesday, the Fed is expected to cut its monthly bond-buying program by another $10 billion.

Also later in the session, the Commerce Department is expected to report that the economy grew at a 3.2 percent annual pace in the second quarter, after it shrank 2.9 percent in the previous quarter.

On Friday, the Labor Department’s key nonfarm payrolls are expected to rise by 231,000 in July after an increase of 288,000 in June. The jobless rate is expected to hold steady at 6.1 percent.

With U.S. unemployment dropping over the last few months and inflation firming, some believe the U.S. central bank could adjust its wording to suggest its willingness to hike interest rates sooner rather than later as the bank approaches its “full employment” mandate.

“If they decide to tweak their assessment of the labor market, it would accelerate the gains for the dollar,” Kathy Lien, managing director of FX strategy for BK Asset Management, wrote in a note to clients.

The yield on the benchmark 10-year U.S. Treasury note US10YT=RR stood at 2.465 percent in Asia, not far from its U.S. close of 2.462 percent on Tuesday, when it got support from German, Italian and Spanish government debt yields all hitting record lows.

Ten-year German government bond yields, the benchmark for euro zone borrowing costs, sunk as low as 1.12 percent DE10YT=TWEB.

That helped the dollar hit an eight-month high against the euro, which dropped as low as $1.3404 EUR= and was treading water at $1.3411 in Asian trade.

Against the yen, the dollar was steady on the day at 102.13 JPY= after it broke above the 102 level on Tuesday for the first time since early July.

The dollar index, which tracks the U.S. unit against a basket of six major rivals, was last at 80.205 .DXY, after touching a six-month high of 81.245 on Tuesday as the euro cratered.

U.S. crude CLc1 edged up around 0.1 percent on the day to $101.11 a barrel after touching an intraday low of $100.37 on Tuesday, its lowest since mid-July.

Spot gold XAU= was slightly higher at $1,299.75 an ounce after slipping 0.5 percent and breaking below the key $1,300 level in the previous session.

Additional reporting by Thuy Ong in Sydney; Editing by Shri Navaratnam & Kim Coghill

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