By Tom Miles
HONG KONG, April 29 (Reuters) - Asian investors fine-tuned
their portfolios on Tuesday ahead of a U.S. interest rate
decision later this week, trimming shareholdings in trade that
was made even thinner by the start of Tokyo's holiday season.
In the hesitant atmosphere, oil prices also retreated more
than one dollar from Monday's record of close to $120 a barrel.
Investors are anxious to see if the U.S. Federal Reserve
will draw a line under the credit crisis on Wednesday by
signalling its run of rate cuts is coming to an end.
Speculation is high that it will trim its funds rate by a slim
25 basis points to 2.0 percent and signal a desire to hold
rates there for the time being. (For more, click on
[]).
"Whenever we get a Fed meeting, it always takes a lot out
of the market," said Lucinda Chan, division director at
Macquarie Equities.
"While a 25 basis point interest rate cut is widely
anticipated, there are hints that this may be the last one for
a while as well. People are just a little bit hesitant at the
moment."
In normal times equity investors favour lower interest
rates, but their precipitous decline has weakened the dollar
and come to symbolise the fear of a U.S. recession, two factors
that have rattled stock markets worldwide in the last six
months.
With Japanese markets closed, stocks across the rest of
Asia, gauged by MSCI's index <.MIAPJ0000PUS>, slipped 0.3
percent by 0217 GMT.
That followed a 0.16 fall in the Dow Jones industrial
average <> percent on Monday, where the biggest U.S.
takeover deal proposed this year helped offset the comments by
influential investor Warren Buffett, one of the deal's backers,
that the country could face a long and deep recession.
GUMMY BEAR
Buffett's Berkshire Hathaway <BRKa.N> will help finance
Mars Inc's $23 billion offer for Wm Wrigley Jr Co <WWY.N>, the
world's largest chewing gum maker. []
The offer showed signs of life in the moribund U.S. merger
and acquisition market and underscored the notion that stocks
are relatively cheap, That helped financial stocks overcome a
report from Morgan Stanley that predicted more profit headwinds
for several large U.S. banks, including Bank of America Corp
<BAC.N>.
Buffett's comments on the U.S. economy revived the spectre
of recession just as some investors were hoping to have seen
the bottom of the market.
"This is not a field of specialty for me, but my general
feeling is that the recession will be longer and deeper than
most people think," Buffett told CNBC television. "This will
not be short and shallow."
On Wednesday, the U.S. Commerce Department is expected to
say how fast the economy grew in the first quarter. Economists
on average have projected that gross domestic product grew at
an annualised 0.2 percent rate in the quarter. []
The U.S. economy has had to endure ballooning raw materials
costs as the weakening dollar helped boost dollar-based prices.
"I think consumers are feeling gas and food prices and not
feeling they've got a lot of money for other things," Buffett
said.
PAULSON REASSURES
U.S. crude oil futures <CLc1> hit a record high of $119.93
on Monday because of supply worries caused by attacks in
Nigeria and the closure of a British oil pipeline following a
refinery strike. The price had trickled back to $118.53 by 0211
GMT on Tuesday.
The strike at Scotland's Grangemouth refinery is expected
to end on Tuesday, allowing the refinery and pipeline to
reopen, the refinery owner Ineos has said. [].
The high cost of fuel has also troubled airlines such as
Korean Air Co <003490.KS>, the world's top cargo carrier, which
slid 4.4 percent.
"If oil prices remain high, the company's earnings are seen
hurt for a long time," said Baik Ji-ae, an analyst at Tongyang
Investment Bank.
U.S. Treasury Secretary Henry Paulson said on Monday that
the economy was facing "headwinds" in the form of rising oil
prices and commodity costs, but insisted its long-term economic
fundamentals remained sound.
"I think there's a concern that supply is tight, could get
tighter and there's a potential for disruption down the road,"
he said.
He denied that there was any sign of 1970s-type
"stagflation" threatening the economy, in which growth slows
and prices shoot up simultaneously.
"We are seeing nothing like that today," he said, "Core
inflation is well contained."
(Editing by Kim Coghill)
(Additional reporting by Geraldine Chua in SYDNEY)
