* Euro rally pauses, but on track for best week in 20 months
* Asian stocks lacklustre, Nikkei off 8-mth peak
* Copper, oil slip on disappointing U.S. data
By Ian Chua
SYDNEY, Jan 14 (Reuters) - The euro took a breather in
Asia on Friday, but was still on track to post its best weekly
performance against the dollar in 20 months, while equity
markets were lacklustre with Japan's Nikkei retreating from an
8-month peak.
The common currency, last at $1.3330 , raced to a
high of $1.3383 on Thursday after the European Central Bank
caught markets off guard by hinting it could lift interest
rates to contain inflation, even while the bloc was tackling a
debt crisis.
The hawkish comments followed interest rate hikes in
Thailand and South Korea this week as policymakers grow
increasingly worried about inflationary pressure.
"The signals from the ECB also reinforce our view that it
will hike before the Fed does," said Ken Wattret, BNP Paribas
chief eurogroup market economist.
"As relatively little in the way of rate hikes has been
priced in for this year, the market is likely to continue to
shift in the direction of early tightening, absent a
resurgence in market volatility."
The euro's rise marked an impressive turnaround from a
four-month low around $1.2871 on Monday and set the scene for
a retest of the December high of $1.3500. It is up about 3.5
percent this week, the biggest weekly rise since May 2009.
Well-received bond sales from highly indebted euro zone
members Portugal and Spain this week and speculation that
European policymakers will boost their war chest against
attacks on euro zone sovereign debt all contributed to the
currency's better tone.
Gains in the euro saw the dollar index , which
tracks the greenback's performance against a basket of major
currencies, retreat to below 80.000 from this week's high of
81.313.
But Tsutomu Soma, manager of foreign securities at Okasan
Securities, said the euro's rise was nothing more than
short-covering from overselling late last year on excessively
bearish view on the euro zone.
"Given that the fiscal problems in the region are
unresolved, investors will be cautious about chasing the
currency higher."
STOCKS SUBDUED
Meanwhile, Asian shares were generally softer as investors
took profits on recent sharp gains and as a pullback in oil
and metals prices hit stocks of resource companies.
Japan's Nikkei average slipped 0.3 percent, a day
after hitting an eight-month high, while stocks elsewhere in
Asia edged down 0.1 percent.
South Korea's KOSPI was flat, Australia's S&P/ASX
200 index lost 0.2 percent and Hong Kong's Hang Seng
index was 0.1 percent lower.
POSCO fell more than 1 percent after the
world's No.3 steelmaker disappointed investors with its fourth
quarter earnings and warned it was struggling to pass on
higher costs of raw materials. []
Global miners like BHP Billiton were also under
pressure with base metal prices weakening, partly on
disappointing U.S. data, which showed jobless benefits claims
hitting a 10-week high.
Copper fell 0.5 percent to $9.567.25 per tonne,
while U.S. crude <CLc1> was 0.4 percent lower at around $91 a
barrel.
(Additional reporting by Chikako Mogi and Hideyuki Sano in
Tokyo; Editing by Kim Coghill)
