Tokyo - Asian shares fell on Friday and the dollar held to overnight losses against the yen as investors fretted over not whether but by how much the US Federal Reserve will cut its monthly stimulus at next week's monetary meeting.
The Fed is expected to reduce its $85-billion-a-month bond-buying programme at its two-day policy meeting ending on September 18. But recent weaker-than-expected data, including jobs growth in August and consumer spending and durable goods orders in July, deepened uncertainty about the extent of reduction.
Underscoring the market's unease, investors overnight first favoured the US dollar after new US claims for state unemployment benefits slipped to the lowest level since 2006, but the dollar then went into reverse after the US Labour Department attributed much of the decline to computer problems in two states.
A Reuters poll of economists on Monday found that most now see the Fed trimming its $85-billion monthly spending on bonds by about $10-billion, compared with estimates for a $15-billion reduction in a poll before the jobs report.
The dollar was largely steady at 99.73 yen after falling to a one-week low of 99.00 yen overnight. Against a basket of major currencies, the greenback also inched higher but was still not far from a two-week trough touched on Thursday.
“While the dollar is exposed in the near term to better risk sentiment and a pause in the Treasury selloff, we generally do not like running short US dollar exposure,” Societe Generale said in a note.
“The Fed is moving to exit, and Treasuries will stay bearish for longer, if not as aggressively, with higher yield set to support the dollar over the coming months.”
MSCI's broadest index of Asia-Pacific shares outside Japan shed 0.7 percent, pulling further away from a three-month high and on track for a second losing day after a 10-day winning streak - its longest such run in six years. The Asian gauge is still up 2.3 percent so far this week.
In Tokyo, the Nikkei share average edged down 0.3 percent, breaking below its five-day moving average.
“The market has priced in the possibility that the Fed will start tapering soon so it should not be negative to the market unless the Fed blurs the schedule and the size of tapering,” said Tomochika Kitaoka, a strategist at Mizuho Securities.
“If the Fed leaves the market with uncertainty again, it could trigger a rise in US yields and a drop in the stock market.”
The Japanese government on Friday upgraded its assessment of the economy for the seventh time this year on the back of rising capital expenditure, in another sign that Prime Minister Shinzo Abe's reflationary policies are boosting growth and suggesting that the economy can withstand a planned sale tax increase.
Gold gained 0.6 percent after sliding 3.4 percent on Thursday, its biggest one-day decline in more than two months, as a sudden price tumble in the futures market added to worries of falling prices as the Syrian chemical weapons crisis abates.
The US and Russia began talks on Thursday on Moscow's plan for Syria to surrender its chemical weapons as Damascus formally applied to join a global poison gas ban, but Secretary of State John Kerry held fast to the position that the US may still use military force if diplomacy fails.
Worries over a US military strike against Syria spooked risk markets two, three weeks ago, sending oil and gold prices higher and driving equities lower globally.
Brent crude added 0.1 percent to around $112.7 a barrel on Friday but was still heading for its biggest weekly drop in three months. - Reuters