Asian stock markets fell despite a drop in crude oil prices, as investors turned cautious ahead of an expected rise in U.S. rates, while the yen stepped back from eight-week highs against the dollar. By 0220 GMT the dollar was at 108.44 yen after falling to an eight-week trough around 108.24 yen in New York. The euro traded at $1.2125 . "Oil prices are still a concern and traders will be hesitant sending dollar/yen below 108 yen, because the catalysts for higher oil prices are still there -- such as tensions in Iraq and Saudi Arabia," said Kathy Lien, chief currency strategist at Forex Capital Markets in New York. Oil prices fell in U.S. trade as Iraq resumed limited crude exports from its southern terminals after a six-day halt caused by sabotage.
U.S. light crude for July delivery was at $37.63 a barrel in Asia, unchanged from its New York settling level, and nearly $5 off 21-year highs hit in early June. The Japanese market cashed in profits from Tuesday's sharp gains, led 0.8 percent lower in morning trade by falls in leading tech firms Fujitsu Ltd <6702.T> and Canon Inc <7752.T>. Analysts said the market's focus was on a U.S. Federal Reserve policy meeting, the handover of power in Iraq and the Bank of Japan's quarterly "tankan" corporate sentiment survey -- all scheduled for next week. "Some institutional investors, betting on a quarter percent rise in U.S. interest rates, started buying undervalued stocks ... But, basically, most investors are holding back ahead of the Fed's meeting," said Fujio Ando, a market analyst at Chiba Bank Asset Management. Other Asian share markets were also lower. South Korea's KOSPI <.KS11> slid 1.3 percent and an MSCI index of non-Japan Asian shares <.MSCIAPJ> was 0.5 pecent lower. Markets in Taiwan and Hong Kong were closed for the Dragon Boat Festival holiday.
RATE EXPECTATIONS
Japanese government bond (JGB) prices rose, helped by concerns repeated on Monday by a senior government official about a recent rise in long-term interest rates. Japanese Vice Finance Minister Masakazu Hayashi urged the Bank of Japan late on Monday to maintain its generous monetary policy to prevent rising long-term interest rates from choking Japan's economic recovery. JGB prices have tumbled since the end of May, lifting yields to 1.94 percent, their highest in over three years, as talk of rate rises overseas and an improving Japanese economy has raised expectations that Japan's central bank would end its loose monetary policy. Early on Tuesday the yield on the 10-year JGB <0#JPTSY=JBTC> eased to a one-week low of 1.82 percent, down 2.5 basis points from Monday. In the futures market, the price of key September 10-year JGB futures <0#2JGB:> traded up 0.42 point at 134.37. Dealers said the strong yen was also comforting the market because a higher yen was seen curbing rises in share prices as it hurts Japanese exports. U.S. stocks fell in light trade on Monday as caution ahead of next week's Federal Reserve meeting and the U.S. transfer of power in Iraq overshadowed Wachovia Corp's $14 billion deal to acquire SouthTrust Corp .
Wall Street widely expects the Fed will start a tightening cycle at its policy-setting meeting on June 29 and 30 by raising interest rates by a quarter of a percentage point in a bid to curb inflation. June 30 also marks the handover of power in U.S.-occupied Iraq to an interim Iraqi government, a date that many investors fear could be marked by an escalation of violence. The Dow Jones industrial average <.DJI> fell 0.4 percent to 10,371.47. The Nasdaq Composite Index <.IXIC> slipped 0.6 percent to 1,974.38. Spot gold was $394.70 an ounce, up from $393.40 last quoted in New York.///