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Asian shares inch up, euro zone and Fed QE3 eyed

Asian shares inch up, euro zone and Fed QE3 eyed

Tokyo: Asian shares crept up on Monday with expectations rising that weak US jobs data would prompt the Federal Reserve to announce fresh stimulus this week and Europe to make use of this week’s key events to push forward its debt crisis management.

MSCI’s broadest index of Asia-Pacific shares outside Japan was up 0.22%, after climbing nearly 2.2% for its biggest daily gain in six weeks on Friday.

Japan’s Nikkei average opened down 0.2%.

US nonfarm payrolls grew by 96,000 jobs in August, sharply below the 125,000 forecast, and the jobless rate fell to 8.1% from July’s 8.3%, although the fall largely reflected a drop in the participation rate.

The jobs data increased bets for the Fed to announce another round of bond buying known or quantitative easing (QE) at its 12-13 September policy meeting, lifting gold prices to six-month highs. The dollar index against key currencies fell to four-month lows, while driving down US Treasury yields on Friday.

But views of analysts and economists remained divided over whether the Fed would see the job growth as sufficiently sluggish to spur an aggressive easing such as QE.

“Unsatisfactory economic conditions and a failure to meet its (full employment) mandate suggest that the FOMC is set to act soon. At a minimum, we expect the FOMC to extend its forward guidance on rates at next week’s meeting, although there is a strong likelihood it will deliver even more," Amber Rabinov at ANZ Research said in a note.

The dollar index hovered near its four-month lows on Monday and the dollar traded at ¥78.24, not far off a five-week trough around 78.02 plumbed on Friday. Spot gold eased 0.1% to $1,735 an ounce, slipping from Friday’s peak of $1,741.30, its highest since 29 February.

Eventful week for Europe

The euro eased 0.1% to $1.2790, after rallying more than 1 percent on Friday to a four-month high of $1.2815.

Markets surged broadly after the European Central Bank agreed last week to launch a new and potentially unlimited bond-buying programme, focused on short-dated bonds in countries implementing approved fiscal austerity measures.

The International Monetary Fund strongly backed the ECB’s plan, saying it was ready to get involved in designing and monitoring its implementation, while European Commissioner for Economic and Monetary Affairs Olli Rehn said the move is a major step towards stabilising markets.

ECB executive board member Benoit Coeure said countries that apply for the bond-buying scheme will not necessarily be asked to make more cuts.

“Although ECB president Draghi’s bond-purchase program may not be a direct solution to Europe’s high debt/low growth problem, it buys invaluable time for national governments to pursue their austerity policies by keeping yields in check and equities supported," said Ashraf Laidi, chief global strategist at City Index, said in a note.

Key events for Europe this week include a 12 September ruling by Germany’s constitutional court on the new euro zone bailout fund. Financial market prices suggest investors expect the court to back the fund, which would pave the way for aiding countries faced with high borrowing costs such as Spain.

Madrid intends to discuss conditions attached to the ECB’s bond-buying plan with euro zone finance ministers this week. An European Union finance ministers meeting is set for 14-15 September.

Global lenders, returning to Athens to assess Greece’s austerity reforms before granting its latest bailout which is crucial in keeping the country afloat, have rejected parts of a nearly €12 billion package prepared by the government.

German chancellor Angela Merkel had reached the view that Greece must not be allowed to leave the euro zone in the autumn and is prepared to grant Athens more flexibility over its bailout payments, der Spiegel magazine wrote on Saturday.

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