A rare rally in the US dollar was the focus in Asia today as investors wondered if US president Barack Obama's nine-day visit to the region would generate pressure on some countries to let their currencies rise.
The bounce in the long-suffering dollar added to profit-taking in commodities such as gold and oil, while weakness in shares across Asia supported the dollar as a safe-haven trade.
European shares also looked set to open lower as investors awaited French and German GDP figures.
Mr Obama kicks off his first official tour of Asia by meeting Japanese prime minister Yukio Hatoyama today, then goes on to Singapore, China and South Korea.
High on the agenda will be US calls for Asian countries to do more to stimulate domestic demand instead of relying on exports to America. That would likely require much of Asia, and China in particular, to let their currencies appreciate. But there's an inherent contradiction in the US stance.
Treasury secretary Timothy Geithner often states his desire to see a strong dollar, yet at the same time wants Asian exporters to let their currencies gain ground against the dollar.
Asked about yuan flexibility, Thai finance minister Korn Chatikavanij sounded reluctant to press the US case.
"From our perspective, what is most important is that China's economy remains robust - we therefore should respect their economic policies, including the exchange rate policy, not least since it has delivered desired results - to the benefit of the the global economy," he said.
Leaders of the Asia Pacific Economic Cooperation grouping had seemed to give ground this week by backing undefined "market-oriented" exchange rates. Yet many of the same countries have been spotted intervening to buy dollars to stop a rise in their own currencies that could make exports less competitive and impede their economic recoveries.
Traders said this burst of buying caught many speculators short and was a major reason the US dollar bounced so far.
The euro had pulled back to $1.4858 from yesterday's peak around $1.5048, while the dollar reached 90.20 yen from the week's 89.26 trough.
Against a basket of currencies the dollar was little changed at 75.589 by early afternoon and off 15-mth lows of 74.774, though it remains within a downtrend channel that stretches back to May.
The dollar's rise overnight added to pressure on oil, already burdened by a surprisingly large increase in U.S. crude inventories. US crude oil futures for December delivery were off 7 cents at $76.87, after shedding 3 per cent yesterday.
Likewise, spot gold was dragged down to $1,105.30 per ounce from a record peak of $1,122.85 yesterday.
Most share markets in Asia tracked yesterday's fall in US stocks, which snapped a six-day winning streak.
The Dow Jones average dropped 0.91 per cent to 10,197.47, while the Standard & Poor's 500 Index fell 1.03 per cent to 1,087.24.
The MSCI index of Asia Pacific stocks outside Japan followed today, sliding 0.47 per cent. But it still looked set to rise around 2.5 per cent on the week, bringing year-to-date gains to nearly 65 per cent.
Some market watchers blamed the reversal on concerns about US shoppers, while others said share price valuations were getting too far ahead of economic fundamentals after a nine-month rally.
A return of strong US consumer demand is vital for a sustainable global recovery, but Wal-Mart Stores yesterday forecast earnings during the key holiday quarter could miss Wall Street estimates as its customers face rising unemployment.
"It is inevitable for exporters in Korea and China to be hit as US retailers are unlikely to enjoy the holiday shopping season," said Choo Hee-yeop, a strategist at Korea Investment & Securities.
In Japan, the benchmark Nikkei fell 0.4 per cent after snapping a four-day rising streak yesterday and recorded its third losing week in a row.
Struggling Japan Airlines as well as a slew of banks including the second biggest lender Mizuho Financial Group and bank Sumitomo Mitsui Financial Group announce earnings results later in the day.
Reuters