Asian shares ease, euro steady after bank reform deal

Reuters

Asian shares eased on Friday, with technology stocks hit by disappointing earnings from Google Inc and Microsoft Corp , while the euro held steady near a one-month high as European leaders made progress on a banking supervision deal.

With equity investors in a mood to book profits, Europe's main stock indexes were poised to open lower after four sessions of gains that have seen the Euro STOXX 50 enjoy its best week so far in 2012.

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Financial bookmakers called Britain's FTSE 100 down around 0.2 percent, France's CAC-40 down 0.3 percent and Germany's DAX down 0.4 percent.

The MSCI index of Asia-Pacific shares outside Japan <.MIAPJ0000PUS> dropped 0.3 percent, having risen 1 percent to reach a seven-month high on Thursday, its biggest daily gain in three weeks. The index looked set for a weekly gain of about 1.7 percent.

The tech sub-index led losses on Friday, falling 1.3 percent <.MIAPJIT00PUS> after Google's third-quarter earnings and revenue came in well under forecasts as its core advertising business slowed, sending its shares down 8 percent, while Microsoft's quarterly profit fell more than expected, hurt by the industry-wide slump in PC sales.

Japan's Nikkei average <.N225> staged a late recovery to edge up 0.1 percent, following its 2 percent jump to a three-week high on Thursday after China reported third quarter economic growth in line with forecasts.

"Investors have confirmed the lows for markets and while caution remains, optimism has emerged," said Naohiro Niimura, a partner at research and consulting firm Market Risk Advisory.

EASING EUROPEAN RISKS

European Union leaders made significant progress towards establishing a single banking supervisor for the euro zone, agreeing at a summit on Thursday that it would enter into force next year, opening the way for the bloc's rescue fund to inject capital directly into ailing banks.

French and EU officials said all 6,000 banks in the single currency area would gradually come under European Central Central Bank supervision by 2014, starting with banks receiving state aid, then large cross-border institutions.

Creating an effective banking union, for which this deal was a first step, is regarded by the International Monetary Fund and market economists as a key component to overcoming the euro zone's three-year-old debt crisis.

The euro was resilient, trading around $1.3070 near a one-month high of $1.3140 hit on Wednesday. The single currency edged 0.1 percent higher against the yen to 103.70 yen, after touching a five-month high of 104.13 overnight.

"The downside risk for the euro is looking weaker near-term and while it will likely remain in a recent broad range, momentum is gaining for the market to want to test its upside," said Hiroshi Maeba, head of FX trading Japan for UBS in Tokyo.

The EU summit continues through Friday, and currency traders said they will keep an eye on it although no surprises were expected.

The euro has also been supported by hopes that highly-indebted Spain will ask for aid in coming weeks, triggering the ECB to start buying Spanish bonds to reduce Madrid's borrowing costs.

Ten-year Spanish bonds yields fell to a 6-1/2 month low of 5.35 percent on Thursday after a successful bond sale, which mirrored improving investor appetite towards the country after Moody's kept its investment grade credit rating.

Italy, also mired in piles of debts, broke records with a bumper sale of its retail bonds and said it will reduce the amount of debt it issues the rest of the year.

Diminishing risk aversion kept upward pressures on benchmark 10-year Treasury yields, which rose to 1.83 percent on Thursday from 1.66 percent last Friday and were set for the biggest four-day gain since mid-March.

The dollar rose 0.1 percent against the yen to 79.35, below a two-month high of 79.47 yen hit on Thursday.

Asian credit markets were only marginally softer, with the spread on the iTraxx Asia ex-Japan investment-grade index widening by 1 basis point.

Spot gold was sluggish, slipping 0.2 percent to around $1,737 an ounce, as rising U.S. Treasury yields on the back of recent positive data supported the dollar and reduced appetite for bullion, which serves as a safe-haven just like the dollar but also an alternative to the dollar.

U.S. crude was barely changed around $92.10 a barrel, while Brent was also flat at $112.43.

(Additional reporting by Alex Richardson; Editing by Richard Borsuk)