* MSCI Asia ex-Japan stocks index still near 28-month high
* Dollar steadies with Fed QE2 debate raging
* Eyes on whether Japan will intervene to weaken the yen
By David Fox
HONG KONG, Oct 26 (Reuters) - Asian stocks slipped on
Tuesday but were near a 28-month high, while the dollar paused
a steep decline, with debate about the outcome of the next
Federal Reserve meeting clouding the near-term outlook.
Major European stock markets opened a touch weaker, with
the FTSEurofirst 300 <> index down 0.1 percent.
After no major policy initiatives emerged from a Group of
20 finance ministers meeting over the weekend, investors had
kept selling the dollar on expectations that further
asset-buying from the Fed will lead to debasement of the U.S.
currency.
Fed officials, however, have not been uniform in their
comments about "QE2", leading to some doubts in markets about
how big such a programme will be. Kansas City Fed President
Thomas Hoenig even called more asset buys by the central bank a
"very dangerous gamble". []
Expectations of more cheap money flooding the financial
system have been pushing up global equity and commodity prices,
which briefly hit a 27-month high on Tuesday before falling.
The euro was down 0.1 percent at $1.3950 <EUR=> after
rising as high as $1.4080 overnight.
The dollar was largely unchanged at 80.71 yen <JPY=>, close
to a 15-year low of around 80.40 yen and not far from a record
low of 79.75 yen last plumbed in April 1995.
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For more on the G20 meeting and its implications, click
[]
For a Q+A on whether Japan will intervene agains, click
[]
For a PDF on G20's uneasy truce on currencies, click
http://r.reuters.com/nan99p
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Japan's finance minister Yoshihiko Noda said he was
watching the market "with great interest" and the government
would "act decisively" if needed -- language similar that used
by Tokyo in the build-up to last month's intervention.
[]
One trader said a fall in the dollar to below 79.75 yen
could be the catalyst for further intervention, but others said
Japan will probably wait for the outcome of the Fed's Nov. 2-3
meeting, before taking any action.
A further decline in the dollar against the yen is likely
to meet support at 80.40 initially and then 80.15, although a
move further down to 79.75 is not expected in the near term.
COMPETITIVE DEVALUATION
Markets increasingly believe G20 signals against
competitive devaluation will make it tough for Tokyo to
intervene, and verbal warnings alone are unlikely to keep the
yen from breaking above record high.
G20 finance ministers pledged at the weekend to move
towards market-determined exchange rates and commit to a
variety of policies to reduce excessive external imbalances.
The MSCI index of Asia Pacific stocks outside Japan slipped
0.3 percent <.MIAPJ0000PUS> but remained close to a 28-month
high hit last week.
Some analysts warned against chasing Asian stocks.
"While not yet expensive, Asia is trading at a premium to
the rest of the world on both a price to earnings basis and in
terms of price to book value," said Andrew Pease, chief
investment strategist, Asia Pacific, with Russell Investments
in Sydney.
"But with QE likely to support equity markets globally, now
is not the time to be underweight the region either," he
added.
The MSCI Asia Pacific ex-Japan index is trading at 12.66
times estimates of earnings 12 months forward, only slight
below its 5-year average of 13.21 times, Thomson Reuters
I/B/E/S data showed.
The MSCI's emerging market stocks benchmark index <.MSCIEF>
was up 0.13 percent at 0630 GMT, while the dollar was down 0.05
percent against a basket of currencies <.DXY>.
A slew of earnings due shortly has helped keep focus on
Asian stocks, but the Singapore stock exchange's <SGXL.SI> $8.3
billion takeover of Australia's ASX Ltd <ASX.AX> faced a hurdle
after key political leaders voiced concern over the deal and
hinted they may oppose it in parliament. []
SGX stock was up 0.3 percent after falling 6.2 percent on
Monday.
Australia's Greens Party, which holds the balance of power
in the upper house Senate, said it had strong concerns about
the deal and may not support lifting the ASX's 15 percent
ownership cap.
Shares of Sony Corp <6758.T> rose nearly 3 percent for a
while as traders cited media reports speculating that the
Japanese electronics maker could be a potential acquisition
target of Apple Inc <AAPL.O>. []
Helping to spark interest was a Saturday report in Barron's
that said Apple could be contemplating a big acquisition and
noted speculation of Adobe <ADBE.O>, Sony or Disney <DIS.N> as
potential targets.
Elsewhere, U.S. light sweet crude oil <CLc1> was down 0.29
percent, to $82.27 per barrel while gold was up 0.09 percent.
Commodities prices largely remained tied to the fate of the
dollar. Since June, the rolling 90-day correlation between the
U.S. dollar index and the Reuters-Jefferies CRB <.CRB> index of
19 commodities has been between -0.83 to -0.95, showing that
when one rises the other will very likely decline.
A continued rebound in the dollar will probably keep a lid
on gold and copper.
(Additional reporting by Reuters FX analyst Krishna Kumar
and Chikafumi Hodo in TOKYO; Editing by Kazunori Takada)
