Asian shares pull away from three-year highs but gain on week

TOKYO (Reuters) - Asian shares pulled back from this week's three-year highs on Friday after a mostly flat day on Wall Street, though a fresh S&P closing record and upbeat U.S. employment data underpinned sentiment.

Financial spreadbetters expected Britain's FTSE 100 to open 20 to 21 points lower, or down 0.3 percent; Germany's DAX to open 19 to 20 points lower, or down 0.2 percent, and France's CAC 40 to open down 11 to 12 points, or 0.3 percent lower.

Overnight data from France and Germany showed business activity in those countries strengthened in both July and June. But risks to the euro zone economy from any tougher sanctions on Russia limited the euro's gains.

Investors also were awaiting the Ifo Institute's closely-watched business sentiment survey due later on Friday.

"The German Ifo current assessment index and expectations index are both expected to decline, which could weaken euro/dollar," said Marshall Gittler, global head of FX strategy at IronFX Global.

"The Ifo index is in contrast to Thursday's positive PMI figures, perhaps because the Ifo incorporates more recent data on the impact that sanctions on Russia are likely to have on the German economy," Gittler said in a note to clients.

A survey on Thursday from China showing factory activity expanded at its fastest in 18 months in July also continued to give cautious markets a lift.

MSCI's broadest index of Asia-Pacific shares outside Japan was down about 0.3 percent, though still on track for solid weekly gain of more than 1 percent. Hong Kong's benchmark index hovered around its highest in more than three years, set for its best week since May.

Japan's Nikkei stock average gained 1.1 percent to a six-month closing high, rising 1.6 percent for the week.

"The prospect for the global economy has not been too bad thanks to recently strong U.S. shares and China data, but we should not be overly optimistic," said Norihiro Fujito, senior investment strategist at Mitsubishi UFJ Morgan Stanley Securities in Tokyo.

Fujito said that long-only investors have stayed on the sidelines as geopolitical concerns in Gaza and Ukraine have curbed their appetite for risk. He also said that investors are waiting for more positive trading cues, after the International Monetary Fund cut its 2014 forecast for global economic growth.

On Wall Street overnight, the S&P 500 eked out a slight gain to its second record closing high in a row, even after earnings painted a mixed picture of the economy. [.N]

After a run of solid tech sector results this week, Amazon reported a much bigger loss than expected, even as sales of the biggest U.S. online retailer surged. Shares tumbled 10.6 percent in after-hours trade, wiping more than $17 billion from its market valuation.

Still, investors took heart from data released on Thursday which showed U.S. initial jobless claims declined 19,000 to a seasonally-adjusted 284,000 for the week ended July 19. That was the lowest since February 2006.

A separate report showed U.S. new home sales dropped 8.1 percent in June, their biggest decline since July last year. But economists noted that other data has pointed to housing getting back on track after stalling late last year.

Fed Chair Janet Yellen said last week that the Fed could raise rates sooner than initially expected if labor markets continued to improve. Most economists expect the U.S. central bank to start raising interest rates in the second half of next year.

Unrest in the Middle East and Ukraine continued to keep investors alert for any developments that could have a wider impact on risk sentiment and markets.

Gaza authorities said Israeli forces shelled a shelter at a U.N.-run school on Thursday as any truce remained elusive. Meanwhile, a U.S. State Department spokeswoman said that Russia was firing artillery across its border with Ukraine to target Ukrainian military positions.


Upbeat data helped the euro climb off an eight-month low of $1.3438 touched on Thursday. The common currency was steady on the day in Asia at $1.3469.

The dollar was little changed against the yen at 101.74 after spiking more than 0.3 percent overnight to a two-week high of 101.86 yen after the U.S. jobless claims data.

The greenback, which has been closely correlated to U.S. yields, got a lift as U.S. Treasury yields rose after the benefit claims report.

The yen showed little reaction to Friday's Japanese consumer price data that was in line with forecasts and did not do much to stir expectations for further monetary easing by the Bank of Japan. Core consumer prices rose 3.3 percent in June from a year earlier, matching forecasts.

Gold was steady at $1,292.74 an ounce after dropping to a one-month low overnight on the improved U.S. and European economic data, though the Gaza and Ukraine tensions limited losses by supporting demand for safe-haven assets.

U.S. crude edged down slightly to $102.05 a barrel.

(Additional reporting by Shinichi Saoshiro and Ayai Tomosawa in Tokyo; Editing by Richard Borsuk and Kim Coghill)