Tokyo: Asian shares retreated from two-month highs on Wednesday as investors paused to assess whether a US plan to deal with banks’ toxic debt would revive the financial system and help pull the economy out of recession.
Japan’s share market shed nearly 1% as bank stocks such as Mitsubishi UFJ Financial Group, the country’s top lender, took a breather, while the yen edged up as the fall in shares tempered appetite for higher-yielding currencies.
The dollar held steady against the euro after a steep rise the previous day on growing expectations of lower euro zone interest rates, and US President Barack Obama said its strength was a sign of confidence in the US economy.
Second thoughts about the US Treasury’s plan to persuade private firms to help rid banks of up to $1 trillion in toxic assets sent Wall Street lower on Tuesday, reversing some of the hefty gains made on Monday when the plan was released.
Investors remain wary that large advances in stock markets in recent weeks could quickly fizzle out amid a stream of gloomy economic news and weaker corporate earnings as the global recession saps consumer spending and investment.
“The enthusiasm surrounding the US administration’s bank plans has been pared back slightly amidst some doubts about its effectiveness,” Calyon’s global head of FX strategy, Mitul Kotecha, wrote in a client note.
“Nonetheless, the pull back in equity markets was relatively small in comparison to the gains registered over recent weeks and for the most part the reaction to the plans remains positive.”
The MSCI index of Asia-Pacific shares outside Japan fell 0.4% after hitting its highest in more than two months on Tuesday. It later pared its losses to stand little changed.
The index has gained more than 27% from a five-year low last November.
On Tuesday the Dow Jones industrial average ended down 1.49% while the S&P 500 Index shed 2.04%.
S&P futures rose 0.3% in Asian trade on Wednesday, signalling a slightly positive US start later in the day.
Japan trade surplus
Japan’s benchmark Nikkei fell 0.7%, after jumping 3.3% the previous day to post its highest close since 9 January. Exporters such as electronics giant Sony Corp tumbled on expectations of weaker earnings
“The market had entered an extremely overheated zone as of yesterday, coupled with the fact investors lack trading factors now that the US ‘bad bank´ scheme has been unveiled,” said Fumiyuki Nakanishi, manager at SMBC Friend Securities.
Japan reported a record fall in exports in February, with no signs of a demand recovery in its key US and European markets, as well as a sharp decline in imports.
The data pointed to more pain for an economy already mired in its worst recession since the 1974 oil shocks, showing both domestic consumption and overseas demand were crumbling under the weight of the global slowdown.
The yen’s reaction was to the data was subdued. The euro dipped 0.1% against the Japanese currency to ¥131.69 after hitting a five-month high of ¥134.50 in the previous session.
The Australian dollar fell 0.3% to ¥67.99 down from Tuesday’s 4-month high of ¥69.60, as the pause in stock markets checked appetite for riskier assets.
The euro held steady at $1.3468 having come down from last week’s 2-month high of $1.3739.
US crude futures eased towards $53 a barrel after an industry group said late on Tuesday that US crude stocks last week rose much more than analysts had forecast.
US light crude for May delivery fell 72 cents ore more than 1% to $53.24, after hitting its highest in nearly three months this week above $54.00 a barrel.