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Global markets: Stable Nikkei spurs yen selling; US, UK markets eyed

Tokyo — Japanese stocks stabilized while Asian shares were little changed on Tuesday, as investors awaited direction from US and UK markets when they resume trade after holidays on Monday, following last week's turbulence.
The Nikkei stock average gained 0.6 percent, recovering from a 1.4 percent drop at the open which came on top of Monday's 3.2 percent tumble. The Nikkei average dropped 7.3 percent on Thursday, its largest single-day loss since the March 2011 earthquake and tsunami.
"The Nikkei is currently at fair value and it is not expensive compared with US stocks in terms of price earnings ratio, so the recent volatility and declines actually created a dip buying chance," said Tetsuro Ii, the chief executive of Commons Asset Management.
The stability in Japanese shares spurred yen selling as it eased investor concerns about having to unwind their yen-selling positions to cover losses.
"Nikkei's trading range is narrowing down day by day. This is not like a panic we saw after the Lehman shock. If volatility is steadying at the current level, then the dollar/yen is likely to head higher," said Kyosuke Suzuki, director of FX at Societe Generale in Tokyo.
The dollar climbed 0.9 percent against the yen to 101.86 after falling to a two-week low of ¥100.66 on Friday, having hit a 4-1/2 year peak of ¥103.74 only a few days earlier on May 22.
Equity, bond and currency markets were vexed last week by talk the US Federal Reserve could scale back its aggressive monetary stimulus, kept in place for the past five years and underpinning global financial markets, sooner than had been expected.
"It is natural for markets to react to suggestions that there may be a change in the Fed's policy stance which had defined a trend in markets for the last five years, and try to assess the magnitude of the impact if the change really takes place," said Yuji Saito, director of foreign exchange at Credit Agricole in Tokyo.
Saito added that seasonal factors such as hedge funds closing their books in May and June have also exaggerated corrective moves as they hastened to adjust their positions.
"Markets are now seeking levels to stabilize, but players are likely to wait for cues from US markets when they resume trade after Monday's holiday," he said.
MSCI's broadest index of Asia-Pacific shares outside Japan was steady around 467.61, holding slightly above Friday's five-week low of 464.99.
Australian shares inched up 0.2 percent and South Korean shares added 0.3 percent. Hong Kong shares were up 0.1 percent while Shanghai shares inched down 0.1 percent.
UK and US holidays kept European equity and bond markets quieter than usual on Monday.
With few offshore leads Australian investors continued to favor the yield play despite the recent sell-off, said Andrew Quin, research strategy coordinator at Patersons Securities in Perth.
"With foreign investors selling out because of Australian dollar risk, it's creating an opportunity for Australian investors to pick up good and top-level yielding companies again," Quin said.
The eventual normalization of monetary policy in the United States, and almost certainly later in other major currency areas, is likely to be a dominant driver of asset markets over the next 3-5 years, but "while it is never too early to contemplate the effects of such a powerful change in the financial context, we think it is too early to position for it," Barclays Capital said in a research.
Fed Chairman Ben Bernanke said last week that a decision to scale back the $85 billion in bonds the Fed buys each month could be taken at one of the central bank's "next few meetings" if the economy looked set to maintain momentum.
Commodities were pressured by an uncertain demand outlook after data last week showed China's factory activity declined in May for the first time in seven months and US manufacturing grew at its slowest pace since October. The dollar's strength also weighed on dollar-based commodities as the rising dollar makes them more expensive for non-dollar holders.
US crude futures fell 0.5 percent to $93.67 a barrel and Brent eased 0.1 percent to $102.53.
London copper shed 1 percent to $7,229.25 a ton.
Spot gold fell 0.4 percent to $1,389.09 an ounce. — Reuters