* Shares fall on weak U.S. consumer confidence
* Oil hovers below $137
* Dollar steadies after dip on bleak U.S. data, bonds up
* Trading cautious ahead of Fed decision
By Tomasz Janowski
SINGAPORE, June 25 (Reuters) - Asian shares drifted lower
and government bonds gained on Wednesday after a drop in U.S.
consumer confidence and home prices hit the dollar and equities
and underscored concerns about the world economy.
The dollar steadied after its drop overnight, gold inched
down and oil hovered below $137 a barrel in slack trade ahead
of the U.S. Federal Reserve's interest rate decision later.
The Fed is widely expected to keep its benchmark interest
rate unchanged at 2 percent, ending a string of cuts aimed at
blunting the economic impact of the mortgage credit market
meltdown.
But markets eagerly wait for the central bank's statement,
worried that weak economy gives the Fed little wiggle room to
deal with inflation fuelled by record-high oil prices.
"There's a real concern about global inflation at the
moment, and you've still got the lingering crisis, so it's
going to be tough for equities," said Greg Goodsell, an equity
strategist at ABN AMRO in Australia.
Tuesday's data underscored the Fed's dilemma, showing a
drop in U.S. consumer confidence to a 16-year low and a further
decline in home prices, both heralding a drop in U.S. consumer
spending.[]
A sluggish U.S. economy and a weak dollar are bad news for
Asia, which relies heavily on exports as an engine of economic
growth and a source of corporate profits.
Tokyo's Nikkei average <> fell 1.5 percent by the
midday break, its fifth day of losses, with exporters such as
Toyota Motor Corp <7203.T> hit by weak outlook for its key U.S.
market.
The MSCI index of Asian stocks outside of Japan
<.MIAPJ0000PUS> was down 0.3 percent by 0310 GMT.
Hong Kong stock market did not open as usual on Wednesday
after tropical storm Fengshen struck the territory, wreaking
havoc in the wealthy city of 7 million. There were no reports
of casualties and the shut-down had no impact on markets
elsewhere in the region. The market may open for the afternoon
session if the cyclone alert gets lifted before noon.
Oil prices <CLc1> pulled back slightly in morning trade
after concerns over Nigerian supply disruptions, tensions
between Israel and Iran drove it more than $1 higher on
Tuesday. But prices still hovered around $3 below all-time
high, underpinned by supply concerns, Middle East tensions and
expectations of a drop in U.S. crude stocks.
The weak U.S. growth outlook and stock market declines
lifted safe-haven government bonds, with the yield on the
Japanese benchmark 10-year bond <JP10YTN=JBTC> dipping 2 basis
points and touching a one-month low.
"Tuesday's release showed that the deterioration in U.S.
consumer indicators took a turn for the worse," said Naomi
Hasegawa, a senior fixed-income strategist at Mitsubishi UFJ
Securities. "It is leading to expectations that the Fed may not
hike at all," she said.
The dollar was little changed after it slipped 0.25 percent
against a basket of major currencies on Tuesday. It traded at
107.77 yen <JPY=> and the euro was little changed at around
$1.5570 <EUR=>.
Gold <XAU=>, which tends to benefit from the dollar's
weakness and inflation fears, eased on Wednesday as investors
booked profits from a recent rally and squared positions ahead
of the Fed rate decision.
