Asian stocks took a breather on Monday after four straight weeks of gains, with expectations of a U.S. interest rate cut this week helping to offset renewed worries about a global credit squeeze.
A public holiday in Japan kept the yen subdued, while spot gold was steadier near $709 an ounce, following Friday's choppy session that saw the precious metal hit a 16-month high of $717 on safe-haven buying, before reversing direction.
News last Friday that Britain's financial authorities had stepped in to rescue mortgage lender Northern Rock, which fell victim to the sharp rise in borrowing costs between banks, renewed worries about the credit market.
The development is clearly unsettling for investors and highlights that the subprime credit market crisis will take some time to resolve, said Guy Hutchings, chief executive officer at MFS Investment Management in Australia.
But hopes are high that the Federal Reserve will cut its benchmark fed funds rate by at least 25 basis points at its policy-setting meeting on Tuesday to help take the heat off those credit concerns.
By 0043 GMT, MSCI's measure of Asia Pacific stocks excluding Japan had slipped 0.1 percent. The index, which posted its fourth straight weekly gain last week, had risen nearly 22 percent from a five-month trough plumbed on August 17 and was now just about 3 percent away from its July 24 peak.
Japanese financial markets were closed for Respect for the Aged Day holiday and will reopen on Tuesday.
Investors sold some bank shares on renewed credit worries, knocking Australia's Commonwealth Bank down 0.8 percent and National Australia Bank down 1.7 percent.
South Korean exporters were also under pressure after China, their top export market, raised interest rates again last Friday for the fifth time this year to rein in inflation.
Steel maker POSCO and Samsung Electronics both lost about 1 percent.
Oil and gas producer Woodside Petroleum also pared recent gains after U.S. crude extended its pullback from a record high above $80 set last Friday. Oil was down 58 cents at $78.52 in early Asian trade.
HOLIDAY SUBDUES YEN
The dollar was little changed versus the Japanese currency at 115.30 yen, while the euro bought nearly 160 yen, not far from late New York levels on Friday.
Against the dollar, the single currency fetched $1.3866, still within striking distance of a record high just above $1.39 set late last week.
Growing expectations of a U.S. rate cut had pressured the dollar against most other major currencies.
With key U.S. economic data printing softer and with inflation having eased in the past few months, the case for lowering of the fed funds rate would be building even in the absence of the recent strains in the financial system, said Darren Gibbs, chief economist at Deutsche Bank.
When these strains are factored in, the case for a 50 basis point cut appears quite persuasive.