singapore (REUTERS, Bloomberg) - Emerging-market equities dropped to the lowest level in a month as the US dollar's strength reduced demand for riskier assets and investors remained concerned about the potential for Donald Trump's policies to crimp growth in developing nations.
MSCI's broadest index of Asia-Pacific shares outside Japan , which touched a five-month low on Thursday, eased 0.1 percent, and is headed for a weekly drop of 1.4 percent.
Japan's Nikkei also lost 0.1 per cent, but is set to end the week with a small 0.1 per cent gain.
A measure of developing currencies slid 0.1 per cent, led by declines in the Mexican peso, which touched a three-week low after US President-elect Donald Trump appointed Peter Navarro, a vocal critic of trade with China, to run the National Trade Council.
"We're a bit nervous about emerging markets because of the combination of rising US yields and a strong dollar," said Nathan Griffiths, who manages about US$750 million of equities at NN Investment Partners in The Hague. "The real concern we have is whether stronger growth in the US will translate into stronger growth for those markets."
Overnight, US equities posted their first back-to-back daily declines of the month in light trading as investors took time out ahead of the Christmas weekend. US indices fell as much as 0.4 per cent on Thursday.
Wall Street stocks have been on a tear since the US election on expectations that President-elect Donald Trump's promised fiscal stimulus will boost economic growth and company profits. The Dow Jones Industrial Average has surged 8.7 per cent since before the election.
The markets globally appeared be on pause amid the looming holidays, with the MSCI World index down 0.15 per cent on Thursday, and little changed early on Friday.
Europe's STOXX 600 index also closed down 0.2 per cent on Thursday, with the broader downtrend offsetting optimism on hopes of a government bailout for troubled Italian lender Monte dei Paschi di Siena.
The Italian government approved a decree early on Friday that will open the way for the rescue of the world's oldest bank, after it failed to raise enough money from private investors to stay afloat.
Prime Minister Paolo Gentiloni told reporters his cabinet had authorised the creation of a 20-billion-euro fund to prop up Italy's embattled banking sector, with Monte dei Paschi expected to be first in line for help.
In the foreign exchange markets, the US dollar was subdued after having scaled its highest point since December 2002 on Tuesday. It has since hovered below that level, with traders unwilling to make any big moves ahead of the holiday weekend.
The dollar index, which tracks the greenback against a basket of six global peers, was steady at 103.06, down from Tuesday's 103.65 peak. It is poised for a weekly gain of 0.1 percent.
The dollar inched down 0.1 per cent against the yen to 117.49, set to end the week 0.4 per cent lower.
Still, most traders retain positive bets on the US currency, particularly after upbeat economic data including business spending, and an upward revision to third-quarter economic growth on Thursday.
"The trend is definitely for a stronger dollar," Stephen Casey, senior currency trader at Cambridge Global Payments in New York. "Any dip in the dollar will a buying opportunity."
The euro was also flat at US$1.04375 early on Friday, set for a loss of 0.2 per cent for the week.
Sterling was little changed at US$1.2278, on track for a weekly slide of 1.6 per cent.
Oil prices slipped after posting gains on Thursday on the strong US economic data and optimism that crude producers would keep to their pledge to limit output.
US crude retreated 0.6 per cent to US$52.66 a barrel in early Asian trade on Friday, but remains on track for a 1.4 per cent gain for the week.
The decline in gold prices which have languished in the wake of the dollar's rally, slowed on Friday.
Spot gold was steady at US$1,128.84 an ounce, heading for a weekly loss of 0.5 per cent.