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GLOBAL MARKETS-Dollar limps up, Asia shares slip

Published 10/12/2009, 12:48 AM
Updated 10/12/2009, 12:51 AM
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* Dollar edges up on short-covering, still seen vulnerable

* South Korea drags down Asia stocks 0.4 pct

* Trade limited due to Japan, U.S. holidays

* Oil extends gains on global recovery hopes

By Eric Burroughs

HONG KONG, Oct 12 (Reuters) - The dollar edged further away from 14-month lows on Monday as investors trimmed bets against the beleaguered U.S. currency, while South Korean stocks dragged down other Asian markets on worries third-quarter earnings may not live up to expectations.

Activity was limited due to a holiday in Japan and with most U.S. financial markets closed later in the day for the Columbus Day holiday.

South Korea's KOSPI led the decline among Asian markets and shed 0.9 percent, hurt by heavyweights such as Samsung Electronics and steelmaking giant POSCO

POSCO, the world's fourth largest steelmaker, is expected to report upbeat earnings and give positive guidance on Wednesday, benefitting from improving demand and lower raw material costs.

But some investors were starting to get nervous about the third-quarter earnings season.

Earnings results from major U.S. banks and companies this week are seen as a key reality check for whether a seven-month rally in stocks this year has more legs.

"Cost cutting has been the main driver of second-quarter earnings, but the main focus in Q3 is the ability to generate revenue," said analysts at Calyon in a note to clients.

The MSCI index of Asia-Pacific shares outside Japan dipped 0.4 percent, with material and financial shares among the biggest drags. The Thomson Reuters regional index was also down 0.4 percent.

The dollar won a brief reprieve late last week from a steady slide that has raised worries about the waning status of the world's reserve currency and prompted some central banks in Asia to intervene in foreign exchange markets to stem corresponding gains in their own currencies.

The dollar index, a gauge of its performance against six major currencies, edged up 0.1 percent to 76.502 after falling as far as 75.767 last week. The dollar climbed 0.5 percent to 90.15 yen while the euro shed 0.2 percent to $1.4703

The greenback has been battered by investors shifting funds out of safe-haven U.S. Treasuries and money markets and into higher-yielding emerging market assets, and by worries that central banks are cutting their share of foreign reserves held in dollars.

Thailand's central bank governor signalled on Monday that it would intervene further to curb gains in the baht against the dollar and said it was diversifying reserves after weeks of such intervention

South Korean government bonds dipped despite the drop in stocks, giving up some of their big gains from Friday when the Bank of Korea tried to tamp down expectations for an interest rate increase as soon as next month.

Three-year KTB bond futures dipped 0.01 point to 109.05.

Gold edged up near last week's record but the dollar's rebound as well as worries about falling jewellery demand in main consumer India were likely to limit gains.

Spot gold was quoted at $1,049.80 an ounce at 0428 GMT, up $1.55 from New York's notional close and within striking distance of a lifetime high of $1,061.20 an ounce struck last Thursday.

Bullion, which attracts safe-haven buying in times of uncertainty, gained nearly 5 percent last week, its best weekly performance in nearly half a year.

Oil futures rose over 1 pct to top $72 a barrel on growing optimism about the pace of the global economic recovery and a positive demand forecast from the International Energy Agency (IEA).

The IEA said world oil demand will recover at a faster pace than previously expected for the rest of this year and next as the economy picks up. (Editing by Kim Coghill)

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