GLOBAL MARKETS-Euro firm before ECB rate move; Japan shares inch up

* Nikkei rises 0.1 percent, MSCI Asia ex-Japan down 0.1
percent

* Brent crude eases, stays above $122 a barrel

* Gold close to $1,460 an ounce, below record

* Euro above $1.43, 122 yen

By Alex Richardson

SINGAPORE, April 7 (Reuters) – The euro clung near a
14-month high against the dollar ahead of an expected euro zone
interest rate rise on Thursday, while gold drifted off a record
it scaled on the back of the U.S. currency’s weakness and
inflation worries.

Asian shares were lacklustre, with the Nikkei crawling up,
as investors who had bet on falls in recent days realised their
gains, but markets elsewhere in the region lost some ground.
Major European indexes were seen opening flat-to-lower and S&P
500 index futures (SPc1: Quote, Profile, Research) weakened a little.

Brent crude oil eased off a two-and-a-half year peak struck
amid worries about war in Libya and unrest in the Middle East.

The Australian dollar , often seen as a play on
rising commodities prices because of Australia’s large resource
sector, rose to a 29-year high against the dollar after stronger
than expected jobs data.

The Bank of Japan held its ultra-loose monetary policy
steady on Thursday, and signalled its readiness to take further
easing steps to support an economy struggling to avoid sliding
back into recession after a devastating earthquake last month.

In contrast, the European Central Bank, meeting later in the
day, was widely expected to raise interest rates by 25 basis
points from a record low 1 percent to curb inflationary
pressures, widening the single currency’s yield advantage over
both the yen and the dollar.

Portugal’s request for European financial aid — seen as
inevitable by the bond markets for some weeks but resisted by
Lisbon until Wednesday — was not expected to throw the ECB off
its hawkish course.

“The yen has been falling on expectations of diverging
monetary policies between Japan, the United States and the euro
zone,” said Bank of Tokyo-Mitsubishi UFJ analyst Teppei Ino.

“The market ignored Portugal’s request for aid because it
was seen unlikely to stop the ECB from raising interest rates.
But the key is how much they are going to raise going forward.”

Higher interest rates will make life harder for struggling
peripheral euro zone countries such as Portugal, Greece and
Ireland by increase their borrowing costs as the try to tackle a
crushing debt burden.

The euro was down 0.1 percent at $1.4310 having risen
to $1.4350, its highest since late January 2010, on Wednesday.

The dollar stood at 85.25 yen , having risen as high
as 85.54 earlier, almost 10 yen above its record low of 76.25
yen hit in March, days after Japan’s earthquake and tsunami.

The euro rose as high as 122.55 yen , just ticks
away from the previous day’s 11-month peak, before easing back
to around 122 yen.

Some analysts said the euro has risen too far too fast, and
that ECB President Jean-Claude Trichet must sound hawkish enough
to keep alive expectations for around 100 basis points in rate
hikes by November for the euro to achieve fresh gains.

“The euro has rallied considerably on the ECB rate hike view
but it may be the case of buy the rumour sell on the fact,” said
Koji Fukaya, chief FX strategist at Credit Suisse.

The Australian dollar rose as high as $1.0481, and also rose
to 89.45 yen , its highest since September 2008.

TURNING POINT

Expectations of a turning in the monetary policy cycle, with
other developed markets starting to tighten, knocked Japanese
government bonds lower.

Benchmark 10-year JGB futures fell 0.26 point to 138.72,
while the 10-year yield rose 1.5 basis points to 1.305 percent.
The yield spread between two-year euro zone and Japanese
government bonds rose to 164.6 basis
points, its highest since December 2008.

There was little immediate market reaction to news that U.S.
lawmakers had not reached an agreement to avert a government
shutdown in budget talks with President Barack Obama.

U.S. stocks inched up on Wednesday, with the S&P 500
gaining 0.2 percent, as a weekly survey from advisers Investors
Intelligence showed the percentage of bulls rose to the highest
level in nearly four months. [ID:nWEN0567]

Tokyo’s Nikkei share average rose 0.1 percent, while
MSCI’s broadest index of Asia Pacific shares excluding Japan
fell the same amount. The MSCI index had hit a
succession of near three-year peaks in recent days.

Japanese shares have recouped more than two-thirds of the
losses sustained immediately after the March 11 earthquake, but
remain around 6.5 percent below their close on the day of the
disaster.

Market players said Thursday’s gains were mostly due to
traders who had gone short — or bet on falls — in recent days
closing out their positions by buying back beaten down shares.

Investors remain cautious about the disruption to factories
and the crisis at a crippled nuclear power plant, which operator
Tokyo Electric Power Co. (TEPCO) is still trying to
stabilise nearly four weeks after the quake.

“The market is increasingly feeling that the TEPCO nuclear
problem will take a long time,” said Takashi Ohba, a senior
strategist at Okasan Securities. “People are also unsure about
production losses.”

Brent crude (LCOc1: Quote, Profile, Research) eased 0.3 percent to $122.01 a barrel,
having reached a two-and-a-half year high above $123 a barrel on
Wednesday, and U.S. crude fell 24 cents to $108.59.

Gold traded around $1,454.85 an ounce, down from its
record $1,461.91 reached a day earlier.

Precious metals, traditionally a hedge against inflation,
have been boosted by rising commodities prices and also the
weaker U.S. currency, which makes dollar-denominated assets
cheaper for non-U.S. investors.

(Additional reporting by Natsuko Waki, Chikafumi Hodo and
Antoni Slodkowski in Tokyo; Editing by Richard Borsuk)

GLOBAL MARKETS-Euro firm before ECB rate move; Japan shares inch up