SINGAPORE, Dec 16 - Asian stocks retreated, bonds rebounded and the dollar fell on Tuesday as Wall Street's enthusiasm over the capture of Saddam Hussein proved short-lived, dealing a blow to exporters such as Canon Inc <7751.T>. Gold inched up after the dollar declined, while oil prices held on to gains amid warnings that Saddam's capture would not spell an end to sabotage attacks on Iraq's oil infrastructure. U.S. Treasuries were steady ahead of U.S. economic data on Tuesday, including the November consumer price index and industrial production. Japan's Nikkei <.N225> had fallen 2.3 percent to 10,254.36 by the midday break as investors locked in profits a day after the index rose more than three percent and tracking Wall Street's decline. "In contrast with Tokyo's fast-growing optimism, people in the U.S. were much more sober," said Katsuhiko Kodama, head of equities at Toyo Securities. "They're quite right, as it's not Osama bin Laden." As of 0220 GMT, shares in South Korea <.KS11> were down 1.2 percent, while Australia <.AXJO> dropped 0.8 percent. Hong Kong <.HSI> was down 0.8 percent shortly after the open. An MSCI index of Asia Pacific shares outside Japan <.MSCIAPJ> was down 0.9 percent, but still hovering near three-year highs.
Saddam's capture delivered only a short-term gain to the dollar, which has been weighed down by a huge current account deficit and security concerns in Iraq. The euro stood at $1.2311 after hitting a record high of $1.2323 in New York. The dollar was fetching 107.73 yen , against 107.60 in New York and a three-year low of 106.74 yen hit last week. Dealers in Tokyo said the dollar was finding some support over concerns Japan would intervene to stop its decline after it failed to get a sustained boost from Saddam's capture. Japan's top financial diplomat, Zembei Mizoguchi, said there were some speculative moves in the currency market causing the dollar's decline, but he did not expect the fall to last long. "There will eventually be a correction," Mizoguchi said. The yen has risen more than nine percent against the dollar this year, while the euro is up about 17 percent.
US ENTHUSIASM FADES
Wall Street's early applause fizzled as investors shifted their focus back to the ballooning U.S. current account deficit and global security concerns. So far, a recovering economy has done little to help the United States fund its widening deficit and despite the arrest of Saddam, violence raged on in Iraq and bombings killed nine people on Monday. The Dow Jones industrial average <.DJI> slipped 0.2 percent, although it held above the key 10,000 level, while the technology-heavy Nasdaq <.IXIC> dropped 1.6 percent. The blue-chip Dow earlier hit a 19-month high of 10,139.63. Analysts said Wall Street's reaction to Saddam's capture suggested Tokyo had overestimated the likely impact on the U.S. economy, Japan's biggest export market. Toyota Motor Co <7203.T> fell 0.6 percent, while Nissan Motor <7201.T> was down 2.4 percent and Honda Motor <7267.T> fell three percent. Canon dropped 1.8 percent.
Disappointing data late on Monday showing global sales of chip-making equipment fell 14.5 percent in October also weighed on techs. Tokyo Electron Ltd <8035.T>, Japan's biggest chip-making equipment maker, dropped 5.2 percent. Japanese government bond prices rebounded as stocks fell, with the yield on the benchmark 256 10-year cash bond <0#JPTSY=JBTC> down four basis points at 1.340 percent after jumping 8.5 basis points on Monday. Shares in Singapore <.STI> were down 0.9 percent, while Taiwan <.TWII> was down 0.7 percent, led by Taiwan Semiconductor Manufacturing Co (TSMC), the world's largest contract microchip maker. TSMC <2330.TW> fell 2.4 percent, tracking a 2.8 percent fall in the Philadelphia Semiconductor index <.SOXX>. The benchmark U.S. 10-year note was steady, with a yield of 4.26 percent. U.S. oil fell three cents to $33.15 a barrel after settling up 14 cents in New York and against about $32.12 in Asia on Monday. Spot gold was quoted at $409.10 an ounce after settling in New York at $408.75.//www.reuters.com