Asian stocks pare earlier gains as Fed looms large, STI up 0.1%

A pedestrian walks past a stock market indicator board in Tokyo, Japan, Dec 14, 2015.
A pedestrian walks past a stock market indicator board in Tokyo, Japan, Dec 14, 2015. PHOTO: EPA

TOKYO (REUTERS) - Asian shares edged up on Tuesday (Dec 15), but moved off their session highs amid caution about volatile crude oil prices and ahead of this week's widely anticipated US interest rate increase.

European shares were expected to rebound in early trading from the previous session's sell-off in which they marked their lowest levels in 2-1/2 months.

Financial spreadbetters at IG expected Britain's FTSE 100 to open 1.2 per cent higher. Germany's DAX was seen up by 1.5 per cent, while France's CAC 40 was also seen 1.5 per cent higher.

China's yuan, meanwhile, weakened further against the dollar after the People's Bank of China (PBOC) set its official midpoint rate at its lowest level in more than four years for a second day.

MSCI's broadest index of Asia-Pacific shares outside Japan was up about 0.2 per cent in afternoon trade.

Singapore's Straits Times Index pared earlier gains to trade just 0.13 per cent higher at 2,818.68 as at 3:02 pm.

But Japan's Nikkei stock index ended down 1.7 per cent at a 7-1/2-week low, extending losses as crude oil prices resumed their slide. An expected US rate increase at this week's Fed's monetary policy meeting has also made investors wary.

"Investors remain jittery before the event, but after some correction, the market will likely provide bargain hunting opportunities," said Masayuki Kubota, chief strategist at Rakuten Securities. "A US hike signals a US economic recovery, and it is generally positive to the Japanese market."

On Wall Street overnight, major indexes erased early losses and returned to positive territory as oil prices found their legs. The S&P500 e-mini futures were up 0.1 per cent in Asian trade.

US crude oil erased earlier gains and was down 0.3 per cent to US$36.22 after falling as low as US$34.53 on Monday before rebounding to end nearly 2 per cent higher.

Brent crude also slid about 0.5 per cent to US$37.75 after falling as low as US$36.33 a barrel on Monday, its weakest level since December 2008. A fall below US$36.20 would take oil down to levels not seen since 2004.

Investors have mostly priced in a Fed rate hike this week, with the main question now turning to how many increases will follow next year.

Traders see an 83 per cent chance the Fed will lift its targeted rate range from 0.25 per cent to 0.50 per cent at the policy-setting meeting, from the current zero to 0.25 per cent range, according to CME Group's FedWatch program.

"Even if the Fed sends a hawkish message by suggesting it aims to hike actively next year, they are data-dependent," said Shin Kadota, chief FX strategist at Barclays in Tokyo. "Indicators will have to show the US economy can withstand rate hikes before the dollar can launch into its next phase of appreciation."

In Asian trade, the US dollar edged down about 0.2 per cent against a basket of currencies to 97.388 .

It was down 0.2 per cent against the Japanese currency at 120.77 yen, while the euro added 0.3 per cent to US$1.1028 .

The Australian dollar edged up to US$0.7242, bolstered by relatively upbeat minutes from the Reserve Bank of Australia's December policy review, which said recent positive economic trends suggest a steady interest rate outlook in the near-term.