TOKYO (Nov 6): Asian shares and commodity currencies dropped on Thursday as investor concerns about a slowing Chinese economy eclipsed optimism over the U.S. outlook, while Tokyo stocks stepped back after posting large gains in a Bank of Japan-inspired rally.
MSCI's broadest index of Asia-Pacific shares outside Japan fell 0.3 percent, led by declines in Australia and China, under pressure from concerns over slower growth the world's second-largest economy.
The Australian dollar flirted with a four-year low of $0.8606 hit on Wednesday while the Canadian dollar stood near five-year lows of C$1.1466 to the U.S. dollar .
Many other commodity exporters took an even bigger hammering The Brazilian real flirted with its six-year trough hit last week while the Russian rouble tumbled to record low after the central bank effectively abandoned the trading corridor for the currency, by halting the multi-billion dollar daily interventions.
Reflecting the selloff, the MSCI's emerging market index is now at its cheapest level since 2005 in comparison to U.S. S&P 500.
"While I would put about 70 percent chance that the global economy will chug along, the fact that two of the BRICs bloc are facing problems do raise some caution," said Soichiro Monji, chief strategist at Daiwa SB Investments.
The regional weakness hit high-flying Japanese shares as speculators booked profits from their 8-plus percent rise over the past three days thanks to Bank of Japan's shock decision last Friday to expand its monetary stimulus.
Nikkei share average fell 0.7 percent and the dollar also gave up gains after having hit a seven-year peak of 115.52 yen.
Still generally solid U.S. economic data and expectations of business-friendly policies following the Republican Party's election victory underpinned the dollar.
Payroll processor ADP reported solid U.S. private-sector job growth in October, auguring well for jobs data due on Friday.
The U.S. dollar index against a basket of currencies held near a four-year peak of 87.606 hit on Wednesday. It last stood at 87.348.
The Republican win also helped to drive record closing highs on Wednesday for the Dow and the S&P 500 Index which both rose 0.6 percent, led by gains in energy and financial shares seen to benefit from light-handed regulations.
CHALLENGE FOR DRAGHI
The euro under pressure although the common currency could see a rebound if European Central Bank chief Mario Draghi scales back his readiness for more stimulus given reports of internal opposition to quantitative easing.
"I think it will be difficult for the ECB to adopt new measures now so the baseline scenario would be that Draghi will drop some hints of possible easing in the future," said Ayako Sera, senior market economist at Sumitomo Mitsui Trust Bank.
The euro traded at $1.2483, near a two-year low of $1.2439 hit on Monday, undermined by concerns that the euro zone economy could be slipping into recession and deflation.
Speculation that the ECB may adopt full-fledged quantitative easing, such as large-scale buying of euro zone sovereign debt, to cope with economic threats has pushed down the euro for months, even though few market players expect a decision on Thursday.
A Reuters report on Tuesday that national central bankers in the euro area plan to challenge Draghi over what they see as his secretive management style and erratic communication made many traders extra cautious about betting too heavily against the euro.
Speculators were eager to sell the yen instead after the BOJ last week surprised markets by enhancing its already massive quantitative easing.
A strong dollar undermined the case for investing in precious metals, sending the price of gold and silver to 4 1/2-year lows.
Gold fell as low as $1,137.40 per ounce on Wednesday, down 2.3 percent and its second-largest one-day drop so far this year. It last traded at $1,143.80.
Silver fetched $15.31 per ounce after a 4.1 percent fall on Wednesday.
Oil prices extended their rebound from multi-year lows after a fire broke out on Wednesday at an oil product pipeline north of the Saudi Arabian capital.
One security source said that the accident was "not the work of terrorists" while a U.S. security source said that the U.S. government assessment was that the fire was caused by faulty repair work.
Smaller than expected rise in U.S. crude inventories also supported prices. U.S. crude futures traded at $78.70 per barrel, off two-year lows of $75.84 hit on Tuesday.