* Inflation worries threaten to contaminate growth story
* Robust earnings fail to cheer as cenbanks in focus
* Japan debt taking ratings cut in stride, move expected
By Saikat Chatterjee
HONG KONG, Jan 28 (Reuters) - Asian stocks fell by half a
percent on Friday, succumbing to a broad bout of profit-taking,
as concern about rising inflation outweighed robust earnings.
The Nikkei average fell by nearly 1 percent, weighed
down by financial stocks, as investors worried about higher
borrowing costs after Standard & Poor's cut Japan's credit
rating by a notch for the first time since 2002.
While the MSCI index of Asian stocks outside Japan
was poised to eke out meagre gains for the
week, thanks to a mild recovery in risk-appetite, Asian stocks
have underperformed the MSCI world index , which
has risen by 2.5 percent since the beginning of the year.
A combination of worries of frothy valuations and a steady
drip of positive data out of Europe and the United States have
encouraged investors to take profits in some Asian markets,
particularly in those that are seen as slow in tackling
inflation.
Barclays strategists said Asian authorities are not
countering price pressures with sufficient tightening and
inflation risks would continue to have a bearing on these
markets.
Malaysia held off from raising interest rates on Thursday
while the Philippines said this week the U.S. Federal Reserve's
dovish stance vindicated its low rates policy.
But some other central banks in the region are stepping on
the policy brakes after heavy offshore selling.
India raised interest rates by a quarter point this week,
its seventh such increase in less than a year, and Indonesia
signalled an aggressive approach to tackling inflation.
Both markets have borne the brunt of the recent selloff.
India's stock index is poised to register its worst
monthly performance since October 2008 and 10-year Indonesian
bond yields have risen by the most since early 2009.
Corporate earnings were robust, with Samsung ,
the world's top memory chipmaker, set to show improved results,
sending its shares to a record.
LIMITED IMPACT
Japanese government bonds advanced, taking the ratings cut
in stride, as investors focused more on the country's ample
savings and largely domestically held debt.
March 10-year futures opened lower, but quickly
reversed losses to be up 0.20 points at 139.98 as the downgrade
had largely been seen as a matter of time. On Thursday evening,
it fell to as low as 139.48 immediately after the downgrade.
Ten-year yields edged lower to 1.215 percent
and credit default swaps widened slightly to
around 83 bps, but well below peaks of near 100 bps hit in 2010.
"JGBs are almost entirely owned by domestic investors, as it
has often been pointed out, and that is limiting the downgrade's
impact," said Jun Ishii, chief fixed-income strategist at
Mitsubishi UFJ Morgan Stanley Securities.
"This limits any impact of selling by foreign investors, who
may take a dimmer view on JGBs in the wake of the rating cut."
The euro fell, giving in to a bout of profit-taking
after strong gains in the past two weeks took it to a 2-month
high of $1.3760. An Asian sovereign name was spotted selling the
single currency, traders said.
Gold held near four-month lows, ater falling more
than 2 percent the previous day, on muted safe-haven demand.
(Additional reporting by Ayai Tomisawa and Shinichi Saoshiro in
TOKYO; Editing by Robert Birsel)
(saikat.chatterjee@thomsonreuters.com; +852-2843-6548; Reuters
Messaging: saikat.chatterjee.reuters.com@reuters.net))
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