Japan leads Asia stocks down

Hong Kong-HONG KONG (Reuters) - Japan on Friday led Asian stocks lower on signs of sluggish consumer electronics demand, while the bruised dollar steadied ahead of U.S. economic data that could affect hotly debated views on next week’s Federal Reserve meeting.

European shares fell 0.2 percent .FTEU3 with London’s FTSE 100 index .FTSE dropping 0.1 percent and German’s DAX .GDAXI easing 0.2 percent. U.S. stock index futures were down about 0.3 percent.

Many asset markets have hardly moved this week, but the modest price action belies the tense jostling for positioning ahead of a storm of events and economic data next week that could cause volatility to spike and determine investors’ tolerance of risk, including potential new bond purchases by the Fed.

U.S. gross domestic data for the third quarter is due later in the day, though it will probably be viewed as an indicator of just how much QE2, what the market has dubbed a new Fed money-printing program, will be -- a question that has consumed traders and investors since September.

GDP growth is expected to come in at 2 percent on an annualized basis, a Reuters poll showed.

“While such acceleration of growth would make QE2 seem less urgent on the surface, core PCE price data will be more important, and if it shows a slowdown, the market will likely increase expectations of the amount of Treasuries the Fed will buy,” Dariusz Kowalczyk, senior strategist with Credit Agricole CIB in Hong Kong, said in a note.

Until the outcome of the Fed meeting, investors were finding fewer reasons to hold on to equities.

Japan’s Nikkei share average .N225 fell 1.8 percent to a 1-month low as the yen strengthened broadly and equity futures were sold aggressively on a break of key chart levels.

Electronics makers were under fire after Sharp Corp (6753.T), whose shares were down 5.8 percent, cut its full-year earnings forecast on reduced demand for flat-screen televisions.

A drop in demand for consumer electronics also stung Samsung Electronics Co (005930.KS), which saw its stock fall 2.5 percent after the world’s top producer of TVs and flat screens said a supply glut will weigh on memory chip prices and LCD prices will keep falling in coming months.

The MSCI index of Asia Pacific stocks outside Japan slipped 0.7 percent .MIAPJ0000PUS, though remained in a narrow range carved out this month.

Hong Kong’s Hang Seng index was down 0.9 percent .HSI, weighed down the most by China Life (2628.HK) after disappointing quarterly results pulled down other insurers.

Bucking the trend, AIA Group Ltd (1299.HK) shares rocketed 17 percent in an eye-opening market debut on Friday following its record Hong Kong initial public offering last week, accounting for about 40 percent of the day’s turnover in Hong Kong.

A common reason cited by electronics exporters for their grim outlooks is domestic currency appreciation, a subject that will dominate a Group of 20 leaders meeting next month.

YEN GAINS

The dollar fell 0.4 percent against the yen to 80.65 yen, the result mostly of spillover from Japanese currency strength against other currencies. It was getting closer to an all-time low of 79.75 yen.

The euro fell 0.2 percent to $1.3895 after a 1.2 percent jump overnight. The euro had trouble breaking above a technical obstacle around $1.3950, leading some traders to take profits.

The dollar index, a measure of the dollar’s performance against a basket of six other major currencies, was up 0.2 percent on the day and basically flat on the week.

The index is down 6.3 percent since September, when expectations grew the Fed would embark on a path to quantitative easing, basically printing money to buy assets and flood the financial system with cash.

In a sign of increasing caution among investors ahead of early November events -- including congressional U.S. elections, a Federal Reserve policy meeting and a G20 summit -- money market funds absorbed a 14-week high of $20.2 billion of new cash in the week ended October 27, EPFR Global said in a note.

Commodities prices, which have been moving sharply in the opposite direction of the dollar for the past few months, were generally under pressure as the dollar held its ground.

Gold was down 0.1 percent to $1,341.66 on ounce, having now slid 2 percent since hitting a record high two weeks ago.

Oil futures were down 0.5 percent to $81.75 a barrel, still up $10 since September.

“We still think the U.S. dollar is going to come under severe pressure, so we’ll see strengthening commodities prices and that should help our miners,” said Patersons Securities dealer Martin Angel in Australia.