* Cyclical sectors outperform; focus on Europe central
bank meeting
* Big question is whether ECB will add to bond buys
* No action from the ECB likely to punish the euro, risky
assets
* Toyota stock, Australia dollar underperform
By Kevin Plumberg
HONG KONG, Dec 2 (Reuters) - Japan's Nikkei share average
hit a five-month high and the euro stayed within sight of
overnight highs on Thursday ahead of a European Central Bank
meeting that investors speculate could yield new measures to
contain the euro zone's fiscal crisis.
Even after Ireland's bailout, investors have been losing
confidence that Portugal and Spain can escape a similar fate,
leading to expectations the ECB will announce backstop
measures to keep cash flowing in its financial system, though
it may disappoint investors by not being ready to increase
bond purchases just yet. [][]
"The sovereign debt crisis has shown early signs of
transforming into a banking and liquidity crisis," Todd Elmer,
currency strategist with Citi in Singapore, said in a note.
"A breakdown in market function is likely to drive risk
reduction among investors, which should favor sharp dollar
strengthening vs euro.
"Such price action could eventually force a stronger
response from both fiscal and monetary authorities in Europe,
but expectations for imminent action are probably premature."
Wall Street's 2 percent rally on Wednesday led by
companies most sensitive to economic turning points and a U.S.
Treasuries sell-off after reports showed strength in labour
and industrial sectors also sparked further equity buying in
Asia.
There were limits though on how the seeming optimism was
feeding through to greater risk taking. For example, the
high-yielding Australian dollar slid 0.5 percent after retail
sales posted the biggest monthly decline in 15 months in
October. []
Also, shares of Toyota Motor Corp fell 1 percent
and were the most active in early trading in Tokyo after the
company's U.S. sales dropped 3 percent in November compared
with the 17 percent rise in U.S. auto industry sales.
The Nikkei led Asian markets higher, rising 1.9 percent
to the highest since June 2010. Turnover has been
picking up as well, with the 5-day moving average of total
turnover holding above the 20-day moving average for longer
than a month.
The MSCI index of Asia Pacific stocks outside Japan was up
1 percent after hitting a two-month low on
Monday, with the materials and technology sectors
outperforming.
The euro was at $1.3130 , nearly unchanged on the
day. The currency ended the New York session above its 200-day
moving average at $1.3122 and Wednesday's highs and closing
level were both higher than the prior day -- usually a signal
of more gains ahead.
With so much hinging on the whims of policymakers though,
the risk of disappointment was high and therefore a resumption
of the euro slide a strong possibility.
"I'd think the euro is quite possibly going to return to
below $1.30," said Sean Callow, currency strategist at Westpac
Bank in Sydney.
The Australian dollar was down 0.4 percent to US$0.9648
but holding well above a base of support in the $0.9530
area, the two-month low plumbed overnight.
Anticipation of how European policymaker action, or
inaction as it may be, would affect how risk taking moves
asset prices was having a mixed impact on commodity prices.
U.S. crude for January delivery was down 0.4 percent in
early trade at $86.42 a barrel <CLc1> after having jumped 3.1
percent on Wednesday. The next target for oil bulls is the
Nov. 11 high of $88.63.
Three-month copper traded on the London Metal Exchange
edged up 0.9 percent after a 2.7 percent rise on Wednesday
.
(Additional reporting by Ian Chua in SYDNEY)
