* Nikkei down 1.7 pct, Asia ex-Japan stocks fall 2.2 pct
* Defensive sectors outperform on global slowdown worries
* Equity valuations may limit sharp declines on US data
* Can the Aussie dollar hold the line on risk?
By Kevin Plumberg
SINGAPORE, June 2 (Reuters) - Asian stocks slid on Thursday, with a steady stream of weak U.S. data putting a damper on risk taking ahead of Friday's payrolls report, though valuations will probably in the near term limit a big decline in global share prices.
Readings of economies around the world from China to the United States have been for the most part undershooting forecasts, raising questions about how well risky assets such as stocks and high yield bonds will hold up once the Federal Reserve's $600 billion bond buying programme ends this month.
Even as big banks such as Citi and Goldman cut their payrolls growth forecasts though, the equity market sell off has been tame compared with previous bouts of so-called "risk aversion" in global markets.
Furthermore, valuations of global equities on the basis of 12-month earnings forecasts are already running below their long-term average and below where they were the last time a protracted period of risk reduction caused a rout in share prices more than a year ago.
Those factors may limit a further sell-off in equities based on fears of a U.S. economic soft patch.
Japan's Nikkei share average fell 1.7 percent , a smaller decline compared with the 2.3 percent tumble in the S&P 500 U.S. stocks index overnight.
Political uncertainty also loomed over Tokyo and weighed on stocks, after Prime Minister Naoto Kan, who faced a no-confidence vote in parliament, said he would resign after getting a nuclear crisis and other disaster-related matters under control. [ID:nL3E7H200W]
The MSCI index of Asia Pacific shares outside Japan was down 2.2 percent , with selling heaviest in the materials, financial and technology sectors. Utilities and telecommunications stocks -- traditionally segments of the market where investors stash their money in times of volatility -- outperformed.
EQUITY VALUATIONS BELOW AVERAGE
Japanese stocks are valued at one time their current book value, Thomson Reuters StarMine data showed, cheaper than Irish and Portuguese shares. However, the market cap of companies listed on the Tokyo Stock Exchange is the third-highest in the world.
"U.S. shares needed a correction of their recent steep gains. Japanese shares will be capped for now but cheap valuations will give the market support," said Ryota Sakagami, strategist at Nomura Securities in Tokyo.
The MSCI all-country world stocks index is running at a 12-months forward earnings multiple of 11.7 times, lower than the 12.4 times average of the past two years and below the 13.5 times valuation they had when the escalating European debt crisis triggered a selloff in risky assets in April/May of 2010, according to I/B/E/S data.
GREECE CONFUSION STALLS EURO GAINS
The euro's march above $1.44 on Wednesday was halted after Moody's cut its sovereign rating on Greece by three notches as Athens struggles to avert a debt default.
The single currency was trading at $1.4360 on Thursday, up 0.3 percent due mostly to the slipping U.S. dollar.
"Looking at the recent data I don't think anyone is really expecting Friday's U.S. employment data to be strong. Investors have already tried to price in possible low figures on Friday, selling the dollar," said Sumino Kamei, a senior currency analyst at the Bank of Tokyo-Mitsubishi UFJ in Tokyo.
The median forecast of U.S. payrolls growth in May in a Reuters poll was revised down to 150,000 from the prior forecast of 180,000 after a report on Wednesday reflected weak private sector employment activity. [ID:nN01187478]
The euro though risked backtracking further to its Monday low around $1.4250 if headlines on Greece suggest a new round of financing is in jeopardy.
At times contradicting headlines on prospects for Greece's near-term financing has made the euro zig zag, though hopes for Greece were kindled after European Central Bank Executive Board member Juergen Stark was quoted as saying the ECB might accept a rollover of Greek debt by private investors. [ID:nLDE750337]
Elsewhere in currency markets, the Australia dollar edged up after stronger-than-expected Australian retail sales, though remained in a range carved out last month and later was unchanged on the day at $1.0615 .
The Australian dollar is considered by market participants to be a weather vane of investor tolerance for risk because of its relatively high yield and close economic relationship with China.
U.S. 10-year Treasury futures
A sudden spill in U.S. stocks sent investors scurrying to the liquidity of the U.S. government bond market and sent the benchmark cash 10-year yield below 3 percent .
The 10-year note was retracing some of its overnight climb in early Thursday trade, bringing the yield back up a bit to 2.97 percent. A mix of selling in shorter maturity paper by speculators and mutual funds and central bank buying of longer dated debt made the yield curve its flattest of the year on Wednesday, Royal Bank of Scotland strategists said in a note.