GLOBAL MARKETS-Japan shares up, yen holds steady on easing talk

Thu Aug 19, 2010 4:09am BST

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* Japan c.bank considers additional monetary easing

* BHP continues to drag down regional index on take-over bid

* Safe haven appeal of gold intact

By Sanjeev Miglani

SINGAPORE, Aug 19 (Reuters) - Japanese shares rose on Thursday, outperforming the rest of Asia, and the dollar held steady on a report that the Bank of Japan was considering new monetary easing measures to weaken the yen's export-sapping rise.

With a mixed performance overnight on overseas markets offering few cues, shares moved in a narrow range across the region as investors, particularly in Japan, picked up stocks on dips.

"Until we get a clear sentiment shift, the markets are still catering mostly to those with a very short-term trading bias, or a very long-term perspective. For everyone in between, the gut-wrenching could continue for awhile," Randy Frederick, director of trading and derivatives for Charles Schwab, said in a note.

The MSCI share index for Asia excluding Japan was up 0.1, held down by tech-heavy Taiwan, where investors waited for GDP figures later in the day worried that demand might slow down, and Australia dragged lower by global miner BHP Billiton (BHP.AX) following its hostile takeover bid for Canada's Potash Corp (POT.TO).

Japan's benchmark Nikkei .N225 rose 1 percent to 9335.24, prompting talk that pension funds were picking up cheap stocks after the index hit an eight-month closing low this week. The gains remained limited, though, by the yen's strength.

"The Nikkei remains at a precarious level. If U.S. stocks were to slide on some negative news again, the index could easily go below 9,000," said Kenichi Hirano, operating officer at Tachibana Securities.

Investors wait for a meeting between Prime Minister Naoto Kan and Bank of Japan Governor Masaaki Shirakawa, and speculation has heightened that the central bank may ease monetary policy further ahead of the meeting, which is expected to take place on Monday.

The most likely option under consideration is expanding the BOJ's fund-supply tool introduced in December, Japan's Sankei newspaper said, without citing sources. The December move helped push down money market rates and subsequently weaken the yen after it hit a 14-year high.

The dollar, appeared to draw some strength from the media report on Thursday, holding steady against the yen at 85.75 JPY=, above a 15-year low hit last week. But the overall reaction was limited as investors remained unsure what exactly the Japanese authorities planned to do.

"If the BOJ announces only what the report is saying, it is likely to disappoint the market. And there is a possibility that the yen may even appreciate further," said Yuji Saito, director at Credit Agricole's foreign exchange department.

The euro dipped 0.3 percent to 109.50 yen EURJPY=R, edging back towards a seven week low of 109.07 yen hit on EBS earlier this week.

Japanese government bonds were little changed on Thursday as a wait-and-see mood prevailed with prospects of further monetary easing by the Bank of Japan mostly priced in after an extensive rally that has taken yields to seven-year lows.

The Australian dollar drifted lower on Thursday, as some market players used uncertainty over the country's election as an excuse to sell into recent gains amid cautious support for risky trades as equities struggled.

Oil was under pressure on Thursday from a stronger dollar and brimming U.S. petroleum inventories, after prices rebounded from a six-week low a day earlier with rising stock markets. U.S. crude for September CLc1 dipped 11 cents to $75.31 a barrel, after touching $73.83 on Wednesday, the lowest price since July 7.

U.S. commercial crude and product inventories rose last week to the highest level since the U.S. government began tracking weekly data, statistics showed, a sign fuel supply is outpacing demand amid a slow U.S. economic recovery.

Gold gained on Thursday after holdings in SPDR Gold Trust (GLD.P) rose again, showing that the safe-haven appeal of the metal remained intact amid volatile equities markets.

Spot gold XAU= added $1.35 an ounce to $1,228.90 an ounce by 0052 GMT. It had rallied to $1,232.35 an ounce on Wednesday, its strongest since early July, on technical buying and strong physical demand.

(Additional reporting by Kaori Kaneko in Tokyo; Editing by Tomasz Janowski)

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