* Inflation worries threaten to sour 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 on Friday in
a broad wave of profit-taking, giving up much of this week's
gains, while a ratings cut gave investors an excuse to reduce
their Japanese share holdings.
For the week, the MSCI index of Asian stocks outside Japan
is set to eke out meagre gains, thanks to the
U.S. Federal Reserve reiterating its dovish policy stance this
week, indicating flows towards emerging markets will remain
strong for now.
Still, Asian shares have underperformed the MSCI world index
, which has risen by 2.5 percent since the
beginning of the year on a combination of factors such as frothy
valuations and a steady drip of positive data out of Europe and
the United States.
Data due later on Friday is expected to show the U.S.
economy gathered speed in the fourth quarter, with the biggest
gain in consumer spending in four years offering the clearest
signal yet that a sustainable recovery is under way.
Last week, Asian stocks fell by more than 6 percent, their
biggest percentage fall in nearly two months, as investors shied
away from markets such as Indonesia and India, on concern
inflation may be getting out of hand.
"We had a billion dollars of outflows in a very short time
and there is bound to be some more selling pressure due to that,
which is what we are seeing after some gains this week," said
Markus Rosgen, head of Asia ex-Japan strategy at Citigroup.
"With the Chinese New Year coming up, some people are
concerned about market liquidity too," Rosgen said, referring to
a long Lunar New Year holiday next week.
Citi strategists recommend staying underweight in Indian and
Southeast Asian shares and overweight in North Asia stocks.
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.
The Nikkei average , one of the best performing
markets this year, was down more than 1 percent, on worries of
higher borrowing costs for financial companies, after Standard &
Poor's cut Japan's credit rating by a notch.
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, after 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)
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