Asian shares wither as Iraq crisis dims mood

Reuters
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A man is reflected on an electronic stock quotation board outside a brokerage in Tokyo April 14, 2014. …

By Lisa Twaronite

TOKYO (Reuters) - Asian shares fell on Wednesday, echoing losses on Wall Street as concerns about escalating violence in Iraq eclipsed stronger U.S. economic data.

The gloom was likely to spread to European trading, where financial spreadbetters expected Britain's FTSE 100 to open as much as 0.6 percent lower, Germany's DAX down 0.5 percent, and France's CAC 40 to weaken 0.7 percent.

"The bears look to be firmly in control and leaning heavily on that sell button as we expect to see a fairly large gap lower, given current volatility, on the open for the major European indices," Capital Spreads trader Jonathan Sudaria wrote in a note to clients.

U.S. Secretary of State John Kerry urged leaders of Iraq's autonomous Kurdish region on Tuesday to stand with Baghdad in the face of a Sunni insurgency, as security forces fought the rebels for control of the country's biggest oil refinery.

A senior U.S. intelligence official said that the insurgents were "well positioned" to hold a broad swathe of territory captured in northern and western Iraq unless the Baghdad government can muster a counter-offensive.

MSCI's broadest index of Asia-Pacific shares outside Japan fell about 0.4 percent, while Japan's Nikkei stock average ended 0.7 percent lower.

In volatile U.S. trading on Tuesday, the S&P 500 closed down more than half a percent in its sharpest loss since June 12, after earlier setting a fourth record high in five sessions following upbeat U.S. economic data.

Sales of new homes surged 18.6 percent to a seasonally adjusted annual rate of 504,000 units in May, the highest since May 2008 and the biggest increase since January 1992. Separate data from the Conference Board showed its index of consumer attitudes rose to 85.2 in June from a downwardly revised 82.2 in May.

But U.S. Treasury prices shrugged off the brighter data and yields fell, with the benchmark 10-year rate dropping to 2.580 percent in Asia from its U.S. close of 2.586 percent.

A trio of Fed officials gave investors no reason to believe the central bank's stance had changed. William Dudley, president of the New York Fed, said the U.S. central bank can wait to raise interest rates until mid-2015 without risking an undesirable rise in inflation.

San Francisco Fed President John Williams said on Tuesday that the U.S. economy is about two years from being "normal," while Philadelphia Federal Reserve Bank President Charles Plosser said the economy continues to improve, making steady rather than exuberant progress.

With no help from U.S. Treasury yields, the dollar edged down about 0.1 percent to buy 101.89 yen, while the euro also inched lower to 138.71 yen.

"Overall, the yen looks better bid unless the Bank of Japan comes up with its next easing plan," said Bart Wakabayashi, head of forex at State Street in Tokyo.

Despite the BOJ's confidence that it will meet its inflation target next year without further stimulus, most economists still believe it will need to ease policy again by December, according to a Reuters poll published on Wednesday.

Japanese Prime Minister Shinzo Abe unveiled a package of measures on Tuesday aimed at boosting Japan's long-term economic growth, though market impact was muted.

Against the greenback, the euro was slightly higher on the day at $1.3613.

The dollar index also consolidated at 80.293, solidly within the 80.000-81.000 range in which it has been stuck since May.

Crude oil markets were mixed as traders weighed the likelihood of supply disruptions from Iraq.

U.S. prices rose on a Wall Street Journal report that the government has allowed two companies to export ultra-light oil known as condensate, a first step that effectively loosens a 40-year ban on most U.S. crude exports.

U.S. crude for August delivery advanced about 0.6 percent to $106.69 a barrel, after spiking as high as $107.50 early in the session.

Brent crude for August fell about 0.2 percent to $114.24.

"Oil prices have been unusually stable in recent years, but events in Iraq are causing a reassessment of medium-term oil market fundamentals that we expect to translate into a phase of higher long-term prices and more volatile trading conditions," strategists at Barclays said in a note to clients.

"Geopolitical risks have replaced China's growth and Fed policy as the main concerns for investors," they said.

Spot gold slipped about 0.4 percent to $1,312.40 an ounce, after spiking to a more than two-month high of $1,325.90 on Tuesday.

(Additional reporting by Shinichi Saoshiro; Editing by Shri Navaratnam & Kim Coghill)

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