Asian shares and Brent crude futures fell on Friday as a pick-up in Chinese inflation prompted profit-taking, although an improving outlook for global economies curbed losses, while the yen slid on renewed expectations for bold monetary easing in Japan.
China's annual consumer inflation rate accelerated to a seven-month high of 2.5% in December on rising food prices, narrowing the scope for the central bank to boost the economy by easing monetary policy. The producer price index fell 1.9% in December from a year earlier, marking the tenth consecutive month of declines, but improved from November's 2.2% annual drop.
Brent crude futures fell 0.4% to $111.50 a barrel and U.S. crude trimmed earlier rises to trade nearly flat at 93.86.
"China's inflation was hotter than expected which might add a little bit of downside risk and some investors may be cashing in profits," said Ben Le Brun, market analyst at OptionsXpress.
MSCI's broadest index of Asia-Pacific shares outside Japan eased 0.2%, erasing morning gains that brought the index near its highest level since August 2011 hit last week. The index looked set to end the week virtually flat after starting the first week of 2013 with a 2.4% jump.
Shanghai shares tumbled 1.3%, dragging Hong Kong shares into negative territory, while Australian shares ended down 0.3%.
"It's not the end of the world. We have been trending in overbought territory for more than a week anyway, so this higher headline inflation is a trigger for some profit-taking. We are in a consolidation phase," said Hong Hao, Bank of Communication International's chief equity strategist, based in Hong Kong.
Hirokazu Yuihama, a senior strategist at Daiwa Securities in Tokyo, said the China inflation data offered some positive signs but, given the market's rapid rally over the past month, it was probably used as an excuse to book profits.
"The slight pickup in inflation is still well below the 3.5% forecast by China, and may also reflect recovery in consumption," he said, adding that the data was unlikely to significantly dent an overall trend in improving risk appetite.
Unexpectedly strong Chinese trade data on Thursday buoyed hopes that demand from the world's second-largest economy will rise, while cautiously optimistic comments from European Central Bank President Mario Draghi eased anxiety over the euro zone debt problems.
European markets will likely sustain optimism. Financial spread-betters predicted London's FTSE 100, Paris's CAC-40 and Frankfurt's DAX would open as much as 0.3% higher. U.S. stock futures were little changed, hinting at steady Wall Street start.
EPFR Global noted that equity mutual funds have brought in $6.8 billion of inflows over the last four business days, with equity flows exceeding bond flows.
In a sign of some stability, South Korea's central bank held interest rates steady for a third consecutive month on Friday as expected, to assess the effect from two cuts last year. However, the bank also revised down its outlook for South Korea's GDP growth in 2013 to 2.8% from 3.2%, which along with a sharp rise in the won hurt Seoul shares.
ABE FUELS NIKKEI BUYING
Japan's benchmark Nikkei stock average closed up 1.4% at a 23-month high as the yen's further slide boosted exporters. Japanese financial markets will be closed on Monday for a public holiday.
Prime Minister Shinzo Abe "is seen seriously committed to making the economy better as he is becoming more detailed, and investors are feeling it is possible under his government," said Kyoya Okazawa, head of global equities at BNP Paribas in Tokyo.
Japan's cabinet approved on Friday an economic stimulus package in the biggest spending boost since the financial crisis as Abe pursues an ambitious agenda to spur growth and end stubborn deflation.
The dollar jumped to 89.35 yen, its highest since June 2010, on strengthening speculation Abe will exert strong pressure on the Bank of Japan to pursue aggressive easing steps. Abe said in an interview with the Nikkei newspaper on Friday that the BOJ should consider maximising employment as a monetary policy goal to help boost the economy.
The euro surged to 118.58 yen, its highest since May 2011.
The yen selling gained momentum after data on Friday showed Japan had logged a current account deficit in November for the first time in 10 months at 222.4 billion yen ($2.5 billion), overshooting a 3.5 billion yen deficit forecast.
"Fresh short-term players, who know nothing about Japan and have never traded the yen before, are now joining the yen selling, and these fresh faces are responding to headlines," said Yunosuke Ikeda, a senior FX strategist at Nomura Securities.
The euro was last at $1.3261 after earlier hitting a one-week high of $1.3280, helped by a smooth first bond sale of the year from Spain on Thursday, which pushed benchmark 10-year Spanish government bond yields to a 10-month low of 4.90%.
As the yen fell, Tokyo gold futures rallied to a record high on Friday to as high as 4,820 yen per gram, exceeding the previous record of 4,754 yen marked on Sept. 7, 2011.
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