* Asian shares falter for 2nd session; rally overdone?
* Dollar gains; euro eases after S&P's Ireland downgrade
* Oil extends gains ahead of U.S. crude stocks data
By Rafael Nam
HONG KONG, June 9 (Reuters) - Asian shares fell for a
second straight session on Tuesday as investors worried a
three-month rally may be overdone, though oil prices extended
gains ahead of data this week expected to show a fall in U.S.
crude inventories.
The dollar rose and the euro remained under pressure after
Standard & Poor's on Monday became the second credit agency
this year to cut Ireland's "AAA" sovereign rating.
[]
The S&P action -- followed by Fitch's downgrade of
Malaysia's local currency rating on Tuesday -- reinforced
concerns about the mounting debt levels many countries are
taking on to fund costly programmes to spur flagging economic
growth or rescue their banking systems. []
Still, European shares appeared set to recover on Tuesday
from losses a day earlier, and combined with the oil price
gains seemed to indicate that some investor appetite for
higher-risk assets remains.
Data from Germany showed manufacturing orders held steady
in April after a sharp increase in March, a further sign that
the worst may be over for the economy. []
"What we are seeing is an inevitable adjustment after
strong optimism boosted the market," said Masaru Hamasaki, a
senior strategist at Toyota Asset Management.
"Investors are shifting their focus to risk factors such as
rising long-term interest rates that could affect an economic
recovery or higher commodity prices that could impact corporate
earnings in the latter half of the year."
The two-day loss in Asian shares comes after markets surged
from lows hit in early March. As of last week, the MSCI
Asia-Pacific index of stocks outside Japan <.MIAPJ0000PUS> had
gained 63 percent from its 2009 low on March 4.
That index lost 1.2 percent on Tuesday, after falling 2.1
percent on Monday. A flat finish in U.S. stocks overnight also
robbed Asian markets of some momentum, analysts said.
In Japan, the Nikkei average <> retreated 0.8 percent
after hitting its highest close in eight months on Monday.
Among other major Asian indexes, Hong Kong <> and South
Korea <> fell more than 1 percent each, while Australia
shed 0.9 percent.
Taiwan <> fell 3.2 percent to a one-month closing low
as technology shares such as smartphone maker HTC <2498.TW>
slumped after reporting weaker-than-expected sales in May.
Although recent gains have reflected expectations of a
global economy that is on the mend, the question is now how
strong or fast any recovery would be.
Other investors are looking longer-term and worry about
potential surging inflation down the line after central banks
have sharply cut interest rates, while deteriorating public
finances are yet another concern.
A strong rebound in inflation could force central banks to
raise interest rates sooner than they would like, potentially
choking off a global economic recovery.
The IMF and World Bank said on Monday the path to global
economic recovery is rife with risks and the onus is on
policymakers to avoid runaway inflation and other pitfalls that
could derail the process. []
Fears that the U.S. Federal Reserve may raise interest
rates from the current near zero percent as early as the end of
the year hit U.S. Treasuries this week.
RATINGS CONCERNS
S&P had already roiled markets last month after cutting its
outlook on Britain's "AAA" rating to negative, though the
debate immediately turned to whether the United States' top
rating might also be at risk.
Ireland lost its "AAA" rating from S&P because of the
agency's concerns about the soaring cost of bailing out the
country's banking sector. The country had already lost the
coveted top credit rating from Fitch in April.
Malaysia saw its long-term local currency ratings cut by
one notch to "A" by Fitch Ratings, which expressed concern
about a growing budget deficit that the agency sees hitting 7.7
percent of gross domestic product this year. []
Among major currencies, the euro fell 0.3 percent to
$1.3860 <EUR=>, though that was still above the two-week low of
$1.3806 hit on trading platform EBS on Monday, its lowest since
late May.
The dollar gained 0.1 percent against a basket of major
currencies <.DXY>, still riding on strength from Friday, when
data showing smaller-than-expected U.S. job losses stoked
expectations that the Federal Reserve may have to raise rates
from near-zero later this year, much earlier than expected.
The Malaysian ringgit <MYR=> fell to 3.533 per dollar, down
0.8 percent from its interday high at 3.506, after the Fitch
action.
U.S. Treasuries were little changed in Asia ahead of an
auction of three-year notes, pausing after a three-day slide.
Two-year notes <US2YT=RR> edged up to yield 1.395 percent.
U.S. short-term interest rate futures, which track market
expectations for Fed rate policy, are now fully pricing in an
increase in the overnight federal funds rate to 0.5 percent in
December, and possibly more.
The Fed lowered the funds rate to a range of zero to 0.25
percent in December last year as it tried to halt the worst
financial crisis since the Great Depression of the 1930s.
The benchmark 10-year note <US10YT=RR> was little changed
in price to yield 3.876 percent after climbing as high as
around 3.91 percent on Monday, their highest since November.
Investors were still willing to chase the rally in oil
prices, however, ahead of data on Wednesday that is forecast to
show U.S. crude stocks have fallen by 400,000 barrels last
week, according to a Reuters poll. []
U.S. crude futures <CLc1> were up 55 cents at $68.63 a
barrel after having touched a seven-month high above $70 on
Friday.
(Editing by Kim Coghill)
