Asian shares ease on caution before U.S. election
Asian shares fell on Monday and the dollar firmed as investors shied away from risk ahead of the closely fought U.S. presidential election and looked past strong U.S. jobs data to fragile economic growth prospects worldwide.
The MSCI index of Asia-Pacific shares outside Japan <.MIAPJ0000PUS> fell 0.3 percent, retreating from its highest level since October 23 touched on Friday.
Japan's Nikkei average <.N225> eased 0.3 percent, after closing at a one-week high on Friday.
South Korean shares <.KS11> dropped 0.7 percent and Hong Kong's Hang Seng index was down 0.3 percent but still near a 15-month high reached on Friday.
Australian shares bucked the trend with a 0.2 percent rise following a mixed bag of data such as a pick up in retail sales but weakness in labor demand and export earnings.
"Rather than any particular downside factor, the main board appears to be largely reflecting caution shown in Wall Street during the last trading before U.S. elections," Kim Young-joon, analyst at SK Securities, said of Seoul shares.
The political uncertainty in the world's largest economy made investors wary of holdings riskier assets, and their safe-haven bids buoyed the U.S. dollar to two-month highs against a basket of major currencies on Monday.
U.S. President Barack Obama and Republican challenger Mitt Romney were neck-and-neck in opinion polls in the final 48 hours before Tuesday's vote.
Obama's re-election is perceived as negative for equities, while markets see Romney as stock-friendly, analysts have said.
After the U.S. election, Congress must deal with a "fiscal cliff", up to $600 billion in expiring tax cuts and spending reductions that are set to kick in next year, which threatens the U.S. economy.
"Investors hate uncertainty, so there will be a sigh of relief when the election is over. Provided there is a clear election result and no change in the divided Congress, then traders and investors will see it as 'business as usual'," said Craig James, chief economist at CommSec.
Other key events this week include the Chinese congress starting November 8 that will usher in a generational leadership change and policy decisions by the Reserve Bank of Australia and the European Central Bank. Market views are mixed over whether Australia would cut rates on Tuesday.
FUNDS PRESSURE GOLD
The dollar was also bolstered by a report showing U.S. employers added 171,000 people to their payrolls last month, far above forecasts, and separate data showing demand for U.S. factory goods rose in September by the most in over a year.
The dollar steadied at 80.50 yen, near a more-than-six-month high of 80.68 yen scaled on Friday.
Spot gold recovered from Friday's 2 percent plunge to a two-month low of $1,673.94 an ounce and ticked up 0.2 percent to $1,679.64 on Monday. It held above a key technical level of its 200-day moving average around $1,660, with investors warily eyeing potential further liquidation from hedge funds.
"Strong U.S. jobs data was used by hedge funds to liquidate gold ahead of their book closing this month and next, as a solid U.S. economy lessens the need for quantitative easing, which had driven gold prices higher," said Koichiro Kamei, managing director at financial research firm Market Strategy Institute.
The uncertainty over the U.S. election also made funds cautious, as Romney's win is perceived to be negative for gold given his criticism of quantitative easing, Kamei said. He said it was crucial whether seasonal demand from India and China could absorb funds' selling to maintain the support level.
Hedge funds and other big speculators shed U.S. commodities by $8 billion last week, the biggest weekly drop in nearly six month, with gold seeing the largest outflow of net long money for a second week running.
U.S. crude futures steadied at $84.88 a barrel and Brent was also nearly flat at $105.72.
The euro steadied at $1.2816 after hitting a one-month low of $1.2816 early in Asia on Monday.
The single currency was undermined not only by the U.S. data but also by Friday's survey showing euro zone October manufacturing shrank for the 15th straight month as output and new orders fell.
Greece is set to vote on another package this week, which could lead the European Union to approve the next bailout tranche but the uncertainty also weighed on the euro.
A private survey of China's growing services slipped in October, with weaker-than-expected new orders injecting a note of caution after Saturday's official survey of Beijing's services sector rebounded in October from a two-year low in September.
Asian credit markets weakened with investor risk aversion, pushing the spread on the iTraxx Asia ex-Japan investment-grade index wider by 4 basis points.
(Additional reporting by Joyce Lee in Seoul and Ian Chua in Sydney; Editing by Kim Coghill)