(Reuters) - A broad asset rally inspired by the U.S. Federal Reserve's pledge to keep rates low paused Friday, as investors sought to gauge how sustainable the burst of optimism will be while waiting for the outcome of crucial Greek debt talks.
MSCI's broadest index of Asia-Pacific shares outside Japan <.MIAPJ0000PUS> added 0.1 percent and hit its highest in nearly 3 months earlier, and was set for a weekly gain of around 2 percent. U.S. stocks fell Thursday as traders cashed in on recent gains and disappointing new home sales data weighed.
The Nikkei stock average was nearly flat.
The dollar index <.DXY> recovered from a seven-week low while the euro eased 0.1 percent to $1.3090, slipping from a five-week high against the dollar of $1.3184 the day before.
Equities, commodities and bonds all rose Thursday as the Fed said it would keep interest rates near zero through at least 2014, and left the door open for a third round of quantitative easing to spur growth.
We are positive on risky assets, with the Fed, as well as other major central banks, willing to provide support through their policy actions, analysts at Barclays Capital said.
But they said while the euro may have further upside in the near term, its likely path to the downside remained.
The United States will release gross domestic product data for the fourth quarter later Friday, and a 3 percent bounce as forecast could bolster risk-positive sentiment.
Data Thursday sustained hopes for a steady recovery in the U.S. economy, with new orders for manufactured goods rising in December and a gauge of future business investment rebounding. A moderate rise in new claims for jobless benefits reflected a tepid improvement in the labor market.
The Fed's announcement boosted U.S. Treasury debt prices, pushing five-year note yields down to the lowest level since at least the 1960s.
Data Thursday showed that while U.S. money funds remained cautious about lending to banks in the troubled euro zone, some investors may be taking small steps back into the region. Commercial paper loans to the foreign banks increased in the latest week for the third consecutive week of gains to the highest level since June.
The European Central Bank's aggressive funding has driven down bond yields of indebted euro zone countries, with Italian 10-year yields falling below 6 percent for the first time in six weeks Thursday, encouraged by strong short-term debt sales and the general positive momentum in markets inspired by the Fed.
But Portuguese five- and 10-year government bond yields rose to euro-era highs on worries that the country may follow in Greece's footsteps and need a second bailout.
The ability of this rally to extend is likely to depend on the view on Europe, wrote National Australia Bank in a note to clients.
Greece and its private creditors made progress Thursday in talks on restructuring its debt, both sides said, and they will continue negotiating Friday with the aim of sealing an agreement within a few days.
Greek media reported that private creditors were willing to lower their final offer of a 4 percent interest rate on new Greek bonds in order to clinch a deal.
Spot gold steadied after jumping Thursday to $1,729.76 an ounce, its highest level since Dec. 8.
The Asian credit markets were firmer, with spreads on the iTraxx Asia ex-Japan investment grade index narrowing by 4 basis points.
(Additional reporting by Cecile Lefort in Sydney)