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GLOBAL MARKETS-Risk assets steadier, but markets still fragile

Published 08/03/2011, 08:58 PM
Updated 08/03/2011, 09:00 PM

* MSCI Asia ex-Japan equity index tad firmer, merger news help Nikkei

* Hopes for U.S. stimulus help stem selloff in risk assets for now

* Worries about global growth still keeping investors wary

By Ian Chua

SYDNEY, Aug 4 (Reuters) - Asian stocks struggled to follow a positive lead from Wall Street on Thursday as worries about global growth persisted, while news of a merger between two Japanese industrial giants helped the Nikkei steady from a two-day drop.

The surge in safe-haven gold also paused at $1,662 an ounce as riskier assets made a tentative comeback on hopes the U.S. Federal Reserve will inject more stimulus to shore up a faltering economy.

The Swiss franc, normally sought in times of heightened market stress, slipped after the Swiss National Bank (SNB) shocked markets by cutting interest rates and threatening more action to cap a soaring currency.

Helping end Wall Street's seven-day losing streak were comments from former top Fed officials in a Wall Street Journal article, saying the Fed should consider a third round of bond purchases if inflation slowed from recent elevated levels and if the economy continued to underperform.

After two days of steep losses, Japan's Nikkei share average edged up 0.13 percent, while MSCI's broadest index of Asia Pacific shares outside Japan put on 0.24 percent.

Australian shares inched up 0.23 percent and South Korea's KOSPI index was little changed.

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Takashi Hiroki, chief strategist at Monex Securities, said a strong rebound in the Nikkei was unlikely.

"We had some mixed data from the U.S. overnight, so investors want to wait for the non-farm payroll report on Friday to find out more about the state of the U.S. economy," Hiroki said.

Among the biggest gainers, both Hitachi and Mitsubishi Heavy stormed higher after the Nikkei business daily reported that the firms may merge to create one of the world's largest infrastructure firms.

CAUTION

Latest data continued to paint a somber picture for the U.S. economy with the pace of growth in the services sector falling in July to its lowest since February 2010, while new U.S. factory orders also fell in June.

The reports followed poor figures on U.S. consumer spending and factory activity. That, along with the festering European debt crisis, is likely to keep buyers cautious.

This means that the SNB's effort to weaken the Swiss franc will prove to have only a fleeting effect.

"I am skeptical that the SNB actions will have more than a transitory 'psychological' negative impact on the Swissie if we remain in a risk-averse world," said Alan Ruskin, global head of G10 currency strategy at Deutsche Bank in New York.

"With the U.S. dollar not playing its traditional role as flight-to-quality vehicle, the flight from a wide array of risky assets is being funneled and concentrated into very few alternatives," he said.

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The dollar last traded at 0.7700 Swiss francs , having climbed off a record low around 0.7608 set this week, while the euro jumped to 1.1049 francs from a trough of 1.0786.

This move helped the euro gain on the dollar as well, despite persistent worries about the euro zone debt crisis.

The euro edged up to $1.4352 , putting more distance from a two-week low around $1.4142 set on Wednesday.

All eyes are on the outcome of the European Central Bank policy-setting meeting on Thursday. The ECB is expected to put its tightening cycle on ice for several months due to the economic slowdown and debt market turmoil.

It may even signal a readiness to buy bonds again, a move that could ease pressures in European debt markets and perhaps help the common currency.

(Additional reporting by Angela Moon and Wanfeng Zhou in New York and Antoni Slodkowski in Tokyo; Editing by Ron Popeski)

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