SYDNEY - The euro eased on Monday as investors waited to see if officials will agree to beef up a euro zone safety fund, while Asian shares mostly fell, led by drop in Shanghai in the wake of China's latest attempt to contain inflation.
European Central Bank Jean-Claude Trichet gave the thumbs up for a bigger safety-net fund on Sunday, a day before a regular meeting of euro zone finance ministers, who are due to discuss an increase in the effective lending capacity of the European Financial Stability Facility (EFSF).
Some analysts played down the chances of a clear outcome this week and pointed to a February 4 European Council meeting as a more likely stage for such decisions to be made.
Still, this week's meeting could give investors a better sense of how much agreement or dissent there is among euro zone members to enlarging the facility.
Any disappointment could see the euro come under renewed pressure. For now, the euro was at $1.3330, having rallied some 4 percent last week to a one-month high around $1.3456 on Friday.
"There could be a further upside for the euro if confidence in the rescue scheme grows. But I think the euro has already risen to pretty good levels," said a trader for a Japanese trust bank in Tokyo.
Meanwhile, a breach of key support took the Shanghai Composite Index (.SSEC) down nearly 3 percent at one stage to lows not seen since early October.
The steep fall in Chinese stocks spooked other markets. Japan's Nikkei (.N225) erased most of its gains to close flat, while shares elsewhere in Asia fell 0.6 percent (.MIAPJ0000PUS).
South Korea's KOSPI (.KS11), which hit a record high early in the session, ended 0.4 percent lower, HongKong's Hang Seng index (.HSI) shed 0.3 percent and Australia's S&P/ASX 200 index (.AXJO) slid 0.8 percent.
Chinese bank shares were among the biggest losers after China on Friday raised banks' required reserves (RRR) for the fourth time in over two months.
On Monday, Chinese media said the central bank has devised calibrated reserve ratios for different banks to tighten curbs on bank lending and tame quickening inflation.
Investors also sold global miners like BHP Billiton (BHP.AX) on worries China's voracious appetite for commodities will cool. BHP fell 1.2 percent.
"With growth still strong, Beijing will likely battle inflation wholeheartedly. Get ready for more hikes in both RRR (at least another 150 bps) and interest rates (two, 25 bps) in the next six months," HSBC economists Qu Hongbin and Sun Junwei wrote in a report.
According to EPFR Global, flows into the emerging market equity funds that it tracks slowed in the week ended January 12 due to worries that high inflation rates will trigger more measures to rein in price pressures.
But underlying appetite for risk persisted, with emerging market local currency and high yield bond funds enjoying solid weeks, EPFR noted.
Asian high-yield bond issuers have wasted no time this year in taking advantage of the healthy appetite for their paper.
Last week, PRC property developer Evergrande Real Estate Group made history with a 9.25 billion yuan ($1.4 billion) synthetic renminbi bond issue, the biggest to date in the fast growing market.
Commodity prices fell, with U.S. crude oil nearing $91 a barrel, but still not far off a two-year high of around $92.58 set early this month.
Copper on the London Metal Exchange eased 0.3 percent to $9,622 a tonne, within reach of a record high of $9,754 set on January 4.
U.S. markets are shut on Monday for a public holiday, but the flow of earnings results will kick up a gear this week with Apple (APPL.O), Citi (C.N) and Goldman Sachs (GS.N) among major firms due to unveil their results.
Source: Reuters
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