Asian shares fell on Friday, as investors booked profits from a recent sharp climb after senior Federal Reserve officials expressed concerns about continuing to expand stimulative bond buying, but the dollar extended gains as U.S. debt yields rose.
European shares were seen tracking Asian peers lower, with financial spreadbetters predicting London's FTSE 100 , Paris's CAC-40 and Frankfurt's DAX would open down as much as 0.3 percent. A 0.1 percent drop in U.S. stock futures suggested a soft Wall Street start.
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Minutes from the Fed's December policy meeting released on Thursday showed concerns among some members of the Federal Open Markets Committee about the potential risks of the Fed's asset purchases on financial markets, even if it looked set to continue an open-ended stimulus program for now.
The Fed's asset-buying policy has been pivotal in underpinning investor risk appetite, so the more hawkish Fed minutes unnerved financial markets.
Benchmark U.S. Treasury yields continued their climb, hitting an eight-month high around 1.93 percent in Asia on Friday, while key 10-year Japanese government bond yields touched a 3-1/2-month high of 0.83 percent.
The dollar also rose on data showing U.S. private-sector hiring improved in December, raising hopes for a strong monthly payrolls report due later in the day, a key gauge to the U.S. economy and the Fed's future policy course.
The dollar's rise makes dollar-based assets more expensive for non-dollar investors, hitting precious metals and oil.
The Fed's minutes spurred consolidation from broad-based buying which took place after U.S. lawmakers earlier this week narrowly avoided falling off the "fiscal cliff" of automatic taxes rises and spending cuts, which risked derailing the economy.
"Market moves largely reflect positioning after the recent rallies and before the nonfarm payrolls, which could tip the markets either way," said Yuji Saito, director of foreign exchange at Credit Agricole in Tokyo, adding that markets may be dictated by interest rates this year, rather than risk-on, risk-off sentiment as was last year.
MSCI's broadest index of Asia-Pacific shares outside Japan <.MIAPJ0000PUS> slid 0.7 percent, after scaling its highest since August 2011 on Thursday. But the pan-Asian index was set to end the first week of 2013 up 1.8 percent, thanks to the New Year's rally.
"After the big relief rally we had on the fiscal cliff decision and compromise, I would expect the market to consolidate a little bit," Martin Lakos division director at Macquarie Private Wealth, said of Australian shares which slipped 0.4 percent, retreating from Thursday's 19-month highs. Hong Kong shares eased from a 19-month highs, falling 0.6 percent, but Shanghai rose 0.5 percent.
The dollar hit its highest since July 2010 against the yen at 87.835 while the euro fell to a three-week low of $1.3019. The U.S. dollar also touched a six-week high against a basket of major currencies on Friday.
"Dollar-positive momentum is solid as the fiscal cliff was averted, the overnight data was good and yields were rising. I won't be surprised to see the dollar rise to 90 yen soon," said Hiroshi Maeba, head of FX trading Japan for UBS in Tokyo.
"Despite repeated Japanese intervention, the dollar had refused to strengthen in the past, but now, it's advancing without any action, suggesting the direction has completely changed to support continued dollar buying," Maeba said.
The yen's tumble pushed Japan's benchmark Nikkei stock average <.N225> briefly up more than 3 percent to its highest since March 2011, outshining the Asian regional bourses. The Nikkei closed up 2.8 percent.
ADP vs US gov't jobs data: http://link.reuters.com/fex44t
Global services activity: http://link.reuters.com/dyh85s
Video on fiscal cliff: http://link.reuters.com/zaf94t
SE Asia valuations: http://link.reuters.com/cuj64t
FISCAL CLIFF VS DATA
U.S. President Barack Obama and congressional Republicans face tough talks on spending cuts and an increase in the nation's debt limit as the hard-fought fiscal deal delayed decisions on expenditures until March 1.
Investor sentiment was supported by recent solid data from the world's two largest economies, the United States and China.
China's services sector saw its slowest rate of expansion in nearly a year and a half in December, a private sector survey showed on Friday, but underlying growth revival remained intact, even if it were modest.
"We are coming off overbought levels today. This cyclical-led rally in offshore Chinese shares should continue in the next few weeks, China's improving economic data will help," said Wang Ao-chao, UOB-Kay Hian's Shanghai-based head of China research.
The U.S. economy likely added 150,000 jobs in December, according to a Reuters survey, up from 146,000 in November. The unemployment rate is expected to hold steady at 7.7 percent.
Resolution of the U.S. fiscal cliff crisis could weigh on some Asian assets as investors could start to shift some money out of overpriced Asian investments in favor of the U.S. on brightening prospects for American stocks.
U.S. crude fell 0.7 percent to $92.26 a barrel while Brent shed 0.6 percent to $111.47.
Spot gold fell 1 percent to around $1,645, dragging silver down more than 2 percent to $29.48.
Despite the decline in equities markets, sentiment in Asian credit markets remained upbeat, with the spread on the iTraxx Asia ex-Japan investment-grade index narrowing by two basis points.
(Additional reporting by Maggie Lu Yueyang in Sydney and Clement Tan in Hong Kong; Editing by Eric Meijer)