Tokyo - Asian shares ticked up on Friday after US jobless claims data pointed to an improving labour market, but the lack of progress in budget and debt negotiations in Washington kept investors on edge.
The solid jobs data revived expectations of a reduction in US monetary stimulus, but not without reservation, after the Federal Reserve's surprise decision not to do so last week and conflicting messages from various top Fed officials since then.
MSCI's broadest index of Asia-Pacific shares outside Japan gained 0.1 percent, with Australian shares scaling a five-year high, in sympathy with Wall Street shares, which broke a five-day losing streak on Thursday.
“Though US jobless claims data is positive enough to marginally lift the market, investors need further evidence of a US economic recovery as well as a settlement in Washington,” said Hanyang Securities analyst Lim Dong-rak.
US weekly initial claims for unemployment benefits dropped 5,000 last week despite economists' expectations of a rise, helping US shares to end a five-day losing streak.
The claims data's four-week moving average, a key gauge that smoothes out weekly volatility, dropped to 308,000, the lowest level since June 2007.
That fall could add to the case that the Fed is safe to go ahead with winding down its bond buying programme later this year. Yet, investors are now cautious not to jump to a conclusion.
“The communication between markets and the Fed has broken down since last week. And different Fed officials are saying different things these days, and nobody knows exactly why the Fed did not taper this month after all,” said Tohru Yamamoto, chief fixed income strategist at Daiwa Securities.
Indeed, four top Fed officials acknowledged on Thursday the Fed confused markets but they hardly agree on what to do next, with both hawks and doves making their own cases, doing little to ease investors' confusion.
Traders also see an impasse in US congressional negotiations over the budget and increasing the federal borrowing limit as likely to cap gains in global shares in the next few weeks.
Republican lawmakers in the House of Representatives refused to give in to President Barack Obama's demands for straight-forward bills to keep the government running beyond September 30, raising the chance of a government shutdown.
While investors see limited economic impact from a short period of shutdown, that does not bode well for negotiations on the more important issue of raising the debt ceiling.
Failure to act on the ceiling by October 17, when the Treasury will have run out of money, could lead to an unprecedented US sovereign debt default.
The cost of protection against US sovereign default in the credit default swap market has risen to its highest level in four months.
In the currency market, the dollar held onto modest overnight gains following the jobless claims data, but was on track to end the week flat, hampered by the risk of US default.
The dollar was also helped by the euro's fall amid renewed concerns Italy's fractious coalition government could fall apart.
Italian centre-right deputies supporting former Prime Minister Silvio Berlusconi renewed threats to resign if their leader is expelled from Parliament following a tax fraud conviction.
The euro traded at $1.3480, off a seven-month high of $1.3569 hit last week while the dollar fetched 98.80 yen, maintaining most of its 0.6 percent gain on Thursday.
The yen had no reaction to data that showed Japan's core inflation rose to a five-year high.
Oil prices were soft as fears of an escalation in a military conflict in the Middle East eased as the United States and Russia agreed on a draft resolution that would demand Syria give up its chemical arms and Washington and Tehran held the highest-level dialogue since the Islamic revolution in Iran three decades ago.
US crude futures dropped 0.3 percent to $102.71. - Reuters