* Dollar hits 2-month low before Fed, Asia stocks edge up
* Focus on unconventional Fed action, cut to 0.5 pct
expected
* U.S. Treasuries climb, 10-yr yield slips near 54-yr low
(Updates prices, adds European outlook)
By Kevin Plumberg
HONG KONG, Dec 16 (Reuters) - Asia stocks edged up on
Tuesday and the dollar hit a two-month low against the euro,
with investors eyeing what unorthodox policies the Federal
Reserve may adopt along with an expected interest rate cut to
0.5 percent or lower.
With rates approaching zero, market players are looking for
clarity on what policy measures the Fed will consider using,
such as outright purchases of financial assets, to help pull
the economy out of a sharp recession. []
"While an additional rate cut by the U.S. Fed is widely
expected, market reaction to the cut is still very much
uncertain, as another rate cut means the Fed is left with one
less card to offer," said Lim Tae-gun, a market analyst at
Daewoo Securities in Seoul.
Recent remarks from European central bankers reflect a
reluctance to cut rates from 3 percent, contrasting with the
Fed and suggesting the interest rate advantage of the euro has
staying power.
But Treasuries also gained as the Fed is likely to give
some indication of how it will guide policy beyond interest
rates, helping drive the benchmark 10-year yield back near a
54-year low hit last week.
European shares were set for a mildly positive start as
markets also awaited quarterly earnings from U.S. bank Goldman
<GS.N>, which is expected to post its first quarterly loss
since going public in 1999 in a sign of the severe market
conditions still slamming the financial sector.
Asian shares were mixed, with Japan's Nikkei average
<> falling 1.1 percent as the yen's strength against the
dollar hurting shares of exporters.
But the MSCI index of Asia-Pacific stocks outside Japan
<.MIAPJ0000PUS> edged up 0.4 percent, but is still down about
54 percent so far this year.
Foreign investors for the last several weeks have been
cautiously loading their portfolios back up with Asian stocks,
particularly companies with relatively low valuations and
little debt on their balance sheets.
The euro edged up 0.2 percent to $1.3715 <EUR=>, having
touched a two-month high at $1.3738 on trading platform EBS.
The dollar index <.DXY> dipped to a two-month low.
The dollar has suffered a sharp turn lower in December,
falling 10 cents versus the euro, and analysts say this is
because the capital U.S. investors took back home in the last
several months has begun to slowly flow overseas again.
The dollar slipped 0.3 percent to 90.25 yen <JPY=> but
stayed above a 13-year low of 88.10 yen hit on Friday.
THE BOND APPEAL
Dismal economic data in both Asia and the United States
kept upward pressure on government bond prices and fears high
that deflation was descending over the global economy.
As a difficult year ends, global investors have sought
refuge in short-term U.S. Treasury bills, maturities of
one-year or less, loaning to the government for almost nothing
or in some cases paying to buy debt.
The yield on the one-month bill <US1MT=RR> briefly slipped
below zero overnight, and the three-month yield <US3MT=RR> is
at a mere 6 basis points.
The 30-year bond <US30YT=RR> rose 9/32 in price to yield
2.959 percent and hit a record low 2.952 percent. The yield on
the 10-year note <US10YT=RR> was down 2 basis points at 2.4891
percent, near a 54-year low.
Yields were expected to head even lower after the Fed
meeting, especially if the central bank opens the door to
unconventional measures such as directly buying government
bonds or mortgage agency debt.
"This would prompt further support for U.S. Treasuries,
alongside the ongoing dismal economic sentiment and fall in
inflationary pressures, keeping yields at depressed levels and
helping the market to absorb the hefty supply pipeline,"
Standard Chartered fixed income strategists said in a note.
U.S. light crude for January delivery <CLc1> was steady
just below $45 a barrel, ahead of what is expected to be the
largest ever supply cut by OPEC at a meeting on Wednesday.
[]
Oil hit a four-year low of $40.50 on Dec. 5, down more than
$100 since hitting a record high in July, as a steep global
economic slowdown saps energy demand.
(Additional reporting by Jungyoun Park in Seoul; Editing by
Lincoln Feast)
