Asian stocks firm as Fed decision looms, yuan slips

Asian shares edged up on Tuesday, but moved off their session highs amid caution about volatile crude oil prices and ahead of this week’s widely anticipated U.S. 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 percent higher. Germany’s DAX was seen up by 1.5 percent, while France’s CAC 40 was also seen 1.5 percent 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 percent in afternoon trade.

But Japan’s Nikkei stock index ended down 1.7 percent at a 7-1/2-week low, extending losses as crude oil prices resumed their slide. An expected U.S. 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 U.S. hike signals a U.S. economic recovery, and it is generally positive to the Japanese market.”

On Wall Street, 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 percent in Asian trade.

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

Brent crude also slid about 0.5 percent to $37.75 after falling as low as $36.33 a barrel on Monday, its weakest level since December 2008. A fall below $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 percent chance the Fed will lift its targeted rate range from 0.25 percent to 0.50 percent at the policy-setting meeting, from the current zero to 0.25 percent 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 U.S. economy can withstand rate hikes before the dollar can launch into its next phase of appreciation.”

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

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

The Australian dollar edged up to $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.

Spot gold prices added about 0.1 percent to $1,063.70 an ounce, nursing losses after they skidded 1 percent on Monday. Investors have been cutting gold positions in anticipation of the Fed’s rate increase.

Source: Reuters