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Asia shares down, euro pressured by doubts over Trump's policies, French election Tue Feb 7, 2017 | 10:54pm EST

http://www.reuters.com/article/us-global-markets-idUSKBN15N02X

By Hideyuki Sano | TOKYO

Asian share markets retreated on Wednesday and the euro was pressured as doubts over the policies of U.S. President Donald Trump and an election looming in France sapped investor confidence.

MSCI's broadest index of Asia-Pacific shares outside Japan .MIAPJ0000PUS ticked down 0.3 percent, slipping further from Monday's four-month high, led by 0.9 percent fall in South Korean shares .KS11.

Japan's Nikkei .N225 slipped 0.2 percent.

"The markets are now paying attention to political risks in Europe and the United States, after a rally earlier this week following the strong U.S. payrolls data," said Kenta Tadaide, senior economist at Mizuho Research Institute.

On Wall Street, the S&P 500 .SPX ended barely higher while the Nasdaq .IXIC edged to a record high as gains in big tech names countered energy declines.

With more than half of the S&P 500 having reported results, fourth-quarter earnings are on track to have climbed 8.2 percent, which would be the best performance since the third quarter of 2014, according to Thomson Reuters I/B/E/S.

A raft of strong global economic data and hopes that Trump's talk of economic stimulus measures had helped to support world share markets, and the dollar, since late last year.

But the lack of detail on Trump's stimulus plans and some other policy stances taken after he was sworn in on Jan. 20 have unsettled investors.

Trump's protectionist leanings on international trade and controversy over his move to temporarily ban the entry of immigrants from seven Muslim-majority countries have caused alarm.

"Corporate earnings have been pretty good so far. But without details of Trump's economic policies, it is hard to become bullish," said Masahiro Ichikawa, senior strategist at Sumitomo Mitsui Asset Management.

Uncertainty on the new administration's currency policy is also keeping foreign exchange markets on edge.

The dollar has been steadily declining against the yen since Trump signaled displeasure with Japan's currency stance on Jan. 31.

The U.S. currency traded at 112.35 yen JPY=, having fallen to 111.59 yen on Tuesday, its lowest since late November.

The pair may see limited moves for now as traders look to a meeting between Trump and Japanese Prime Minister Shinzo Abe on Friday.

The euro EUR=, on the other hand, shed 0.6 percent on Tuesday and last stood at $1.0682, hit by rising concerns that the far right could win France's presidential vote and take the country out of the euro.

The gap between French and German 10-year borrowing costs FR10YT=RR DE10YT=RR widened to 78 basis points, the biggest level since late 2012.

Support for conservative challenger Francois Fillon, who was seen as a frontrunner a few weeks ago, has tumbled in the wake of a financial scandal, losing ground to independent centrist Emmanuel Macron and the anti-EU National Front leader Marine Le Pen.

While most investors expect Le Pen to be defeated in the run-off by a more moderate candidate, markets are nervous after last year's experience of the Brexit referendum and Trump's victory.

In addition, wrangling over Greece's bailout are starting to haunt the market ahead of the euro group meeting on Feb. 20, with two-year Greek debt GR2YT=RR yield soaring to near 10 percent on Tuesday, compared to around six percent just about two weeks ago.

Elsewhere, the Chinese yuan dipped slightly following Tuesday's data that showed China's foreign exchange reserves unexpectedly fell below the closely watched $3 trillion level in January for the first time in nearly six years.

Still, the market impact was limited as the fall in the reserves, of $12.3 billion to $2.998 trillion, was the smallest in seven months, indicating China's renewed crackdown on outflows appears to be working, at least for now.

The yuan was little changed after dipping to one-week low of 6.847 per dollar in offshore trade CNH=D4 and three-week low of 6.8916 in the onshore trade CNY=CFXS.

"The fall was relatively small and had limited impact on the mainland markets. It is not like we have seen massive capital outflows," said Naoki Tashiro, head of TS China Research.

Oil prices extended falls, as a massive increase in U.S. fuel inventories and a slump in Chinese demand implied that global crude markets remain oversupplied despite OPEC-led efforts to cut output.

International Brent crude futures LCOc1 fell 0.9 percent to $54.55 per barrel. They were down 4.0 percent so far this week.

 

(Editing by Simon Cameron-Moore)