The dollar steadied on Tuesday and Asian stocks wavered, despite improving appetite for riskier assets, as investors turned cautious ahead of a meeting of the U.S. Federal Reserve.
European shares were set to open slightly higher, according to financial spreadbetters, while U.S. equity futures were up 0.5 percent ahead of a slew of economic data later in the day.
The dollar <.DXY> was virtually unchanged against a basket of major currencies at 76.412 as markets braced for the two-day Fed meeting starting later on Tuesday.
Investors expect a pledge from the Fed to maintain very low interested rates for an extended period, but they will be on guard for any new indications about monetary policy, especially after recent upbeat sales and jobs data prompted some speculation of a rate rise in mid-2010.
The market is now just waiting for more trading clues. The Fed meeting and its statement as well as U.S. economic data and ensuing reactions in the currency market are a main focus, said Kazuhiro Takahashi, general manager at Daiwa Securities SMBC in Japan.
The dollar found some support against the euro amid persistent concerns about sovereign risk in Europe after Greece was downgraded last week, prompting the Greek government to announce measures on Monday to rein in debt.
The dollar was quoted at 1.4641 to the euro, up from 1.4650 in late New York trade.
Though the dollar index has broken the 55-day moving average, now around 75.71, and has had more good than bad sessions of late, it continues to face headwinds, said David Watt, senior currency strategist at RBC Capital Markets in Australia.
If the Fed highlights exit strategies, watch the topside in the dollar index. If they highlight the 'extended period' of low rates, watch the 55-day moving average.
Abu Dhabi's surprise decision on Monday to provide Dubai with $10 billion to help its neighbor avoid a debt default has boosted risk appetite among investors globally. Dubai's stock market was up nearly 3 percent in early trade, extending Monday's 10 percent rally. <.MIDEAST>
Improving risk appetite helped Asian currencies such as the Taiwan dollar but not the Australian dollar, which slipped as minutes from this month's central bank meeting showed the decision to raise interest rates was a lot closer than markets had thought.
With attention shifting to the Fed meeting, Asian shares were subdued after rebounding on Monday on the Dubai news.
Japan's Nikkei share index <.N225> fell 0.2 percent as the yen edged up against the dollar, putting pressure on shares of exporters.
Japanese markets also continue to be weighed down by growing worries about the country's deteriorating fiscal health.
An auction of 20-year Japanese government bonds on Tuesday drew the weakest investor response in more than three years, reflecting concern about the government's commitment to restoring fiscal discipline and pushing the JGB yield curve to a seven-year peak.
Japan's government said in budget guidelines published earlier on Tuesday that it will keep new bond issuance around or below 44 trillion yen ($495 billion) in the next fiscal year that starts in April. But many market watchers are not convinced it can meet that goal, with tax revenues expected to remain at low levels next year.
The MSCI index of Asia Pacific stocks traded outside Japan <.MIAPJ0000PUS> was down 0.2 percent, and analysts expect investors will continue to take profits before year-end, locking in some gains from the index's 65 percent rally this year.
The Thomson Reuters index of regional shares <.TRXFLDAXPU> was down 0.3 percent.
ABN AMRO Private Banking, however, is still recommending investors buy into emerging market equities, arguing that those markets will continue to attract capital flows.
Business confidence and financial conditions are being progressively restored to move ahead into a sustained recovery. The big picture favors moving away from low cash deposit rates toward higher-yielding assets, Didier Duret, chief investment officer at ABN AMRO Private Banking, said in a note with the bank's outlook for the first quarter of 2010.
Financial markets will be scrutinizing a string of U.S. data due on Tuesday, including industrial production, producer prices and the NAHB housing index for December, for indications on the health of the world's biggest economy.
Energy shares in Australia got a lift on news that Exxon Mobil Corp
A couple of big pieces of news like that is very encouraging. The Exxon move has put a bit of enthusiasm back into the market and it's supportive of our coal seam gas sector, said Ivor Ries, an analyst at E.L. & C. Baillieu Stockbroking in Australia.
Oil futures prices edged higher to just below $70 a barrel, after falling for nine straight days.
Oil has dropped more than $8 a barrel since December 1, its longest slide since July 2001, as rising U.S. inventory levels indicated sluggish fuel demand.
Gold prices retreated to $1,123.60 an ounce, from $1,126.20 at the New York close, amid uncertainty about the dollar's immediate direction.
(Additional reporting by Victoria Thieberger in MELBOURNE, Elaine Lies in TOKYO and Anirban Nag in SYDNEY; Editing by Kim Coghill)