TOKYO (Reuters) – Asian shares eased on Thursday as weak U.S. retail sales raised concerns about sluggish economic growth, while an Italian debt auction later will test market confidence in whether it can avoid becoming the next victim in the euro zone crisis.
MSCI’s broadest index of Asia-Pacific shares outside Japan edged down 0.2 percent while Japan’s Nikkei average opened down 0.7 percent.
European shares and Wall Street ended lower on Wednesday, while the dollar fell after data showed U.S. retail sales hit their worst level in two years in May. Safe haven gold rose.
The report could fuel speculation the Federal Reserve may take further stimulus measures at its policy meeting next week to support the U.S. economy, after a weak May jobs report added to fears about the euro zone and sparked a broad market sell-off earlier this month.
The euro was steady around $1.2573, caught in the middle of recent highs and lows – well above the near two-year low touched on June 1 at $1.2288, but below a three-week high reached on Monday at $1.2672.
The euro’s relative stability after a sharp downgrade in Spain’s credit rating by Moody’s Investors Service on Wednesday was seen as an indication of the extremely bearish stance already taken by investors before a cliffhanger weekend election in Greece, which could see the country exit the euro bloc.
“It tells you much about how bearish market expectations are when a 3 notch downgrade of Spain pushes EUR/USD 15 pips lower,” said Sebastian Galy, strategist at Societe General.
“Asia will not be happy with poor U.S. GDP growth, leading to some nervousness in these (equities) markets. The fear should peak with the Italian bond auction,” he said, noting that the disappointing retail sales could lead to lower GDP forecasts.
U.S. crude fell 0.1 percent at $82.54 a barrel but Brent crude futures inched up 0.1 percent at $97.20.
The cost of insuring against corporate and sovereign defaults in Asia rose slightly, with the spread on the iTraxx Asia ex-Japan investment-grade index widening by 2 basis points.
EUROPE RICH WITH PROBLEMS
Greeks were pulling their cash out of the banks and hoarding food ahead of Sunday. The last published opinion polls showed conservatives who back the 130-billion-euro bailout that is keeping Greece afloat were neck-and-neck with leftists, who are against the rescue deal but want to keep Greece in the euro zone.
Worries about Spain’s financing problems were magnified by the three-notch rating downgrade to Baa3 by Moody’s, which said the newly approved euro zone plan to help Spain’s banks will increase the country’s debt burden.
Spain’s woes have raised speculation that a similarly indebted Italy could be next in line to seek help, prompting technocrat Prime Minister Mario Monti to urge Italy’s politicians on Wednesday to back his tough economic medicine.
Investor jitters have kept yields on sovereign debts of both Spain and Italy at elevated levels, with Italy facing a test later on Thursday with its debt sale of up to 4.5 billion euros.
(Editing by Richard Pullin)