Asian shares eased on Monday as investors turned cautious about riding further on liquidity-driven optimism without seeing more evidence of firmer global growth.
Investors sentiment has been improving over the past couple of months as major central banks around the world showed their determination to flood the financial system with ample funds to avoid a crisis triggered by a credit crunch, allowing money to flow into assets broadly.
While recent U.S. data pointing to a recovery has prompted investors to shift their focus towards economic fundamentals and away from long-running troubles in the euro zone, they remain watchful of developments in the debt crisis and also rising oil prices.
Markets seem to be in a holding pattern. Investors are waiting for the next catalyst before committing to fresh positions, said Stan Shamu, a market strategist at IG Markets.
The MSCI Asia Pacific ex-Japan <.MIAPJ0000PUS> fell 0.9 percent and Japan's Nikkei stock average eased 0.3 percent.
Euro zone crisis in graphics: http://r.reuters.com/hyb65p
Brent 24-hr technical outlook: http://r.reuters.com/nar86s
In commodity markets, Brent crude inched up 0.2 percent to $123.90 a barrel.
Brent settled down nearly 2 percent to $123.65 a barrel on Friday after Saudi Arabia eased investor concerns about a reported pipeline explosion that had pushed Brent to the highest level since July 2008. U.S. crude inched up 0.3 percent to $106.99 a barrel after falling almost 2 percent on Friday.
Copper edged up 0.2 percent to $8,595 a tonne as market players debated whether rising stockpiles of the metal in top user China pointed to sluggish demand or a case of importers positioning for a recovery in consumption. Uncertainty over demand from China weighed on resource-reliant Australian shares.
China aims to grow its economy by about 7.5 percent in 2012 and sees inflation running at around 4 percent for the year, Premier Wen Jiabao said on Monday. That was in line with analyst expectations but lower than the longstanding annual goal of 8 percent.
Data showed on Monday that the HSBC China Services PMI ran at its fastest pace in four months in February, climbing to a seasonally adjusted 53.9 in February from 52.5 in January, though well-below its long-term trend despite an uptick in new business growth to an eight-month high.
The reading contrasted with an official report on Saturday that signalled that the sector was shrinking.
The main risks to our cautiously constructive outlook continue to be Europe, weaker-than-expected Chinese data and higher oil prices, Barclays Capital analysts said.
The dollar index <.DXY> measured against a basket of major currencies rose to a two-week high of 79.500 on Monday, while the euro held steady around $1.3210. The yen hovered near a nine-month low against the dollar of 81.873 hit on Friday.
A firmer dollar capped gold, with spot gold eking out a modest 0.1 percent gain to $1,714 an ounce after suffering its biggest one-week loss.
EUROPE ON RADAR
The European Central Bank's latest liquidity provision last week has further relieved fears about financing difficulties in Europe, but investors will be cautious about how far the euro zone still has to go to resolve its debt crisis.
The recent risk-positive sentiment was dented on Friday when
Spain set itself a softer budget target for 2012 than originally agreed under the euro zone's austerity drive, raising doubts over the credibility of the European Union's new fiscal pact.
Spain also said that its economy would shrink 1.7 percent this year, and sees the jobless rate at 24 percent.
Greece returns to the radar this week as it faces a deadline to complete a bond exchange with private holders, scheduled to close on March 8, before a second bailout is paid.
There is uncertainty over how much participation Greece will see for its bond swap, and a failure to agree on the swap would put the country back on the brink of a messy default.
Greece remains a big risk factor but it has increasingly become difficult to use as a strong market mover, partly because of the ECB and other central bank liquidity injections soothing sentiment, particularly in stock markets, said Mitsuru Sahara, chief FX manager at Bank of Tokyo Mitsubishi-UFJ in Tokyo.
Investors are starting to look at data following recent positive U.S. figures, and a weak showing from Europe could be a bigger market mover (than Greece), Sahara said.
The euro zone's services PMI will be released later in the day.
Asian credit markets were subdued early on Monday, with the spreads on the iTraxx Asia ex-Japan investment-grade index barely changed from Friday.
(Additional reporting by Ian Chua and Narayanan Somasundaram in Sydney; Editing by Alex Richardson)