* Asian shares slide, triggered by profit-taking sales
* Yuan mid-point against dlr fixed at highest since July
2005
* Aussie, euro retreat after hitting day-high on yuan
fixing
* Oil demand wanes, limited impact seen on China
consumption
* Eyes on UK budget after credit rating downgrade warning
By Umesh Desai
HONG KONG, June 22 (Reuters) - Asian stocks retreated on
Tuesday as investors booked profits a day after China's weekend
decision to give its currency more flexibility triggered a risk
rally.
China's move on the yuan had set off optimism that a
stronger yuan would lift its purchasing power for foreign goods
such as commodities, a boon to the global economy given the
nation's vast appetite for raw materials.
But that euphoria was checked as investors took a more
considered view on the impact the move would have on economic
fundamentals.
"The potential boost that might be given to consumption is
likely to be subtracted from what will happen to exports," said
Emil Wolter, head of regional strategy at Royal Bank of
Scotland.
"But the bottom line is that the market is making a huge
deal of an insubstantial occurrence," he said, adding that the
yuan move had triggered a rally because it came after stocks
registered their worst May in 12 years and at a time when there
were large short positions.
"Sell in May and go away" is an old stock market adage
which refers to the seasonal weakness in shares.
Beijing set the mid-point for the yuan's daily trading
range at a 5-year high on Tuesday, which gave the markets a
brief respite from the selling but kept most indexes in the
red.
On Tuesday, the MSCI index of Asia Pacific ex-Japan stocks
<.MIAPJ0000PUS> was down 0.7 percent, hovering around the day's
lows. Losses in technology <.MIAPJIT00PUS> and resources
<.MIAPJMT00PUS> provided the main drag.
China's central bank set the yuan's daily mid-point
<CNY=SAEC> at 6.7980 against the dollar on Tuesday, the highest
level since the yuan's revaluation in July 2005, signalling it
could allow the yuan to rise further.
Spot yuan rose to as high as 6.7900 in early trade, up 0.11
percent from the close on Monday, when it jumped 0.42 percent.
But by mid-day it was down 0.17 percent.
Tuesday's fixing initially reignited demand for riskier
currency trades, with the Australian dollar <AUD=> and the euro
<EUR=> jumping to the day's high against the dollar. But that
rise was short-lived and by noon the euro <EUR=> dipped 0.1
percent to $1.2298.
The Australian dollar rose as high as $0.8834 <AUD=D4>, up
from around $0.8765 just before the mid-point was announced.
The Australian dollar then dipped to $0.8782, up 0.23 percent
on the day.
Financial markets have also turned cautious ahead of
Britain's budget which will be announced later on Tuesday.
As the sovereign debt crisis spreads through Europe, rating
agencies have warned even Britain's triple-A status could be at
risk if the finance minister's plans to cut the record deficit
are found wanting.
FOREIGN BUYING HALTS
"Investors are growing more cautious on the view that the
magnitude of the yuan's new flexibility may not be as big as
the market had earlier hoped," said Lee Sun-yeb, a market
analyst at Shinhan Investment Corporation in Seoul.
"It seems the market is taking a bit of breather following
its recent sharp gains, as it nears the earlier high. Foreign
buying has also halted."
Japan's Nikkei share average <> was down 1 percent.
The Korea Composite Stock Price Index <> fell half a
percent as foreigners dumped shares amid growing risk aversion.
Foreign investors turned sellers on Tuesday snapping their
seven-session buying streak.
Oil prices fell 0.8 percent toward $77 on speculation that
a gradual appreciation of the yuan would have a limited impact
on China's petroleum imports in the short term.
China's stock market, one of the world's worst performers
this year, managed to cling on to gains after the previous
day's surge. The Shanghai Composite Index <> was up 0.3
percent, after rising 2.9 percent on Monday to its highest
close in 3 weeks. []
And analysts expect more volatility ahead as the central
bank's move comes a day after it kept the mid-point unchanged.
"The authorities want to say they are showing a more hands
off approach and more flexibility in the markets but the
reality is they are introducing more intraday volatility in the
market," said Craig Chan, senior FX strategist at Nomura
International.
(Additional reporting by Saikat Chatterjee in HONG KONG and
Jungyoun Park in SEOUL; Editing by Jan Dahinten)
