Asian stock markets were mixed on Monday as many investors stuck to the sidelines as the second quarter winds down, while the dollar recovered from a slide on worries about the push by major emerging countries for a reserve currency alternative.
A drop in oil prices pulled down energy-related shares, with Japan's Nippon Oil <5001.T> losing nearly 2 percent. Crude oil lost 51 cents a barrel to $68.65 on easing tensions in major exporter Nigeria.
Asian shares outside Japan have surged 32 percent in the second quarter, which would be the best quarterly gain in 16 years, as investors embraced the region on hopes it would emerge more quickly from the deepest global recession in decades.
World stocks have mostly shuffled sideways in the past few weeks as investors have questioned how quickly the global economy will return to growth, giving a boost to battered government bonds.
Asian manufacturers had cranked up production to increase inventories after having slashed them too sharply at the end of last year, but doubts remain about whether consumer and business demand will improve enough to make growth sustainable.
Japanese economic figures highlighted this trend. Industrial output jumped a hefty 5.9 percent in May for a third straight month of growth, but forecasts showed that factories expected the recovery to taper off in coming months.
It is a sign of the unusual nature of the current cycle that the strongest rise in output on record can still be viewed as a moderate disappointment, said Richard Jerram, chief Japan economist at Macquarie Securities in Tokyo.
The MSCI index of Asia-Pacific shares outside Japan slipped 0.3 percent in light trade after having posted a 2.3 percent rise last week. The drop tracked a 0.2 percent dip in the U.S. S&P 500 <.SPX> on Friday.
The MSCI benchmark for Asia is up about 31 percent so far this year, outpacing the 7.4 percent increase in world stocks and the 1.7 percent rise in the S&P 500.
Japan's Nikkei average <.N225> edged up 0.4 percent, with shares of Nippon Electric Glass <5214.T> climbing 1 percent after the maker of LCD glass lifted its estimated earnings for the April-June quarter to double the top of its previous forecast range.
The dollar inched higher after being hit on Friday when China's central bank renewed calls for a super-sovereign currency to reduce the U.S. dollar's global domination, saying it was a serious defect in the international system for one currency to tower over all others.
On the sidelines of a meeting of central bankers over the weekend, China and Brazil said they were discussing a currency arrangement to allow exports and importers to settle deals in local currencies, thereby avoiding the dollar.
The dollar index, a gauge of its performance against six major currencies, rose 0.3 percent to 80.151 <.DXY>, near a two-week low struck on Friday. The euro retreated 0.3 percent to $1.4025, while the dollar was up 0.2 percent at 95.50 yen.
Government bonds pushed higher, helped in part by the rally in U.S. Treasuries last week after a record $104 billion of debt was sold without causing trouble for dealers.
Foreign central banks were believed to have been hefty buyers at each of the three auctions via indirect bids.
The five-year Japanese government bond yield dipped a basis point to 0.710 percent, matching a three-month low.
A sale of 10-year JGBs later in the week is expected to be a key test of demand as the market has started to absorb bigger monthly issues that are funding the Japanese government's stimulus spending.
(Editing by Kazunori Takada)