Asian shares edge higher, earnings caution caps

Asian shares edged higher on Tuesday but sentiment was cautious, after global shares faltered overnight on weak corporate results and outlook, and with Asia's corporate reporting season underway.

South Korea's POSCO backed by Warren Buffett will on Tuesday kick off the earnings season for major Asian steelmakers on an expected weak note. The world's fourth-biggest steelmaker is likely to post a third consecutive loss, dogged by weak China demand and prices.

The MSCI index of Asia-Pacific shares outside Japan <.MIAPJ0000PUS> was up 0.2 percent, with Australian shares adding 0.5 percent and South Korean shares <.KS11> opening 0.1 percent higher.

U.S. stocks fell on Monday after heavy-equipment maker Caterpillar Inc slashed its 2012 forecast and warned that the global economy was slowing more quickly than it had expected, pulling European equities lower as well.

Asia has also started its earnings season, making investors more vulnerable to earnings reports overseas.

"Local earnings will disappoint as Chinese growth did not pick up in third quarter as originally thought," said Kim Young-joon, an analyst at SK Securities, as Korean earnings season began.

"While this may momentarily shake the index, in a broader sense, it is more accurate to say that the rebound of the Kospi has been put off."

Japan's Nikkei average <.N225> opened 0.6 percent higher as the yen weakened broadly and supported exporters.

The dollar rose to 80.02 yen, its highest since July 6, with expectations for further monetary easing from the Bank of Japan later this month underpining the Japanese currency.

The yen also weakened to a 5-1/2 month low of 104.59 yen against the euro and a 1-month low of 82.68 against the Australian dollar.

Traders have said that sentiment towards the yen has been turning around in recent weeks, and yen selling gained momentum on Monday after the dollar/yen broke key technical resistances.

"Generally speaking, expectations for a BOJ easing help push the dollar up against the yen, but the effect on the economy from easing is limited. It's more to do with recent market flows which have been pointing to a weaker yen," said Hiroshi Maeba, head of FX trading Japan for UBS in Tokyo.

Maeba said the dollar may be capped around 80 yen in the near term but support appeared firm at 79.60-79.70 yen.

On Monday, a slew of economic reports offered the latest evidence that Japan, the world's third-biggest economy was struggling to sustain its momentum in the face of global headwinds and cooling demand and investment at home.

Exports suffered their sharpest decline since the aftermath of the March 2011 earthquake and business sentiment hurt by the territorial stand-off with China, Japan's top export market, hit its lowest since 2010.

Several central banks hold policy meeting this week, including the U.S. Federal Reserve, the Bank of Canada and the Reserve Bank of New Zealand, all of which were expected to keep rates on hold but may offer dovish statements, Barclays Capital said in a research note.

"We recommend staying engaged in risky assets in FX, taking advantage of the low volatility conditions being supported by central bank policy," it said.

The euro inched up 0.1 percent at $1.3071, drawing support from expectations for bailouts to Spain and Greece in coming weeks and also on comments by European Central Bank policymaker Joerg Asmussen, who reiterated that the bank's commitment to do everything in its power to show the euro is irreversible.

U.S. crude rose 0.6 percent to $89.18 a barrel and Brent inched up 0.1 percent to $109.58.

Asian credit markets were subdued, with the spread on the iTraxx Asia ex-Japan investment-grade index widening by 1 basis point early on Tuesday.

(Additional reporting by Somang Yang in Seoul; Editing by Michael Perry)