GLOBAL MARKETS-Yen falls as BOJ meets, non-Japan Asia stocks gain

* Nikkei falls 0.3 percent, MSCI Asia-Pacific ex-Japan up
0.6 percent

* Brent crude eases to around $122 a barrel

* Yen extends decline, euro at 6-month high against dollar

* Copper up, gold above $1,450 after hitting record on
Tuesday

(Updates prices)

By Alex Richardson

SINGAPORE, April 6 (Reuters) – The yen fell as the Bank of
Japan began a meeting on Wednesday that may signal its readiness
to further loosen monetary policy to support the economy, while
the prospect of more cheap money from Tokyo helped boost shares
elsewhere in Asia

Brent crude oil hovered below a two-and-a-half year high it
struck amid war in Libya and unrest in the Middle East.

Gold sat just below its record as China’s fourth rate rise
since October and oil prices fuelled concerns about inflation
that helped propel the precious metal, traditionally a hedge
against rising prices as well as a safe haven investment.

European shares were seen edging up, extending a rally that
has taken them to their highest in nearly four weeks. Financial
spreadbetters called the major European indexes to open 0.2-0.3
percent higher, while S&P 500 index futures (SPc1: Quote, Profile, Research) pointed to
modest gains on Wall Street after a flat finish on Tuesday.

CARRY TRADE

The yen has been on a downward trend since a rare joint
intervention by leading central banks to weaken it last month
revived interest in the yen “carry trade” — a strategy of using
cheap yen loans to fund higher yielding investments.

“The yen is weakening due to expectations for interest rates
to rise abroad,” said Tsutomu Soma, senior manager at Okasan
Securities’ foreign securities department in Tokyo.

“In countries other than Japan, there are moves towards
raising interest rates or exiting from extreme monetary
easing… But in Japan, a massive amount of funds have been
pumped into the money market as an emergency measure.”

Japan’s Nikkei share average closed down 0.3 percent.
A weaker yen ought to be positive for Japan’s heavyweight
exporters, but investors remain concerned about production
capacity knocked out by the devastating March 11 earthquake.

“The dollar going above 85 yen is a significant
breakthrough,” said Hiroaki Osakabe, a fund manager at Chibagin
Asset Management. “But carmakers and other manufacturers have to
be able to produce at full capacity first to really feel
positive impact. That’s why they’re not surging on the news.”

MSCI’s index of Asia Pacific shares outside Japan
reached its highest in nearly three years. It
rose 0.6 percent, led by a 1.5 percent gain for its tech
sub-index . Shanghai stocks were up more
than 1 percent and Taiwan shares gained 1.7 percent.

Market players said the yen carry trade was encouraging the
foreign fund flows that often set the direction for emerging
Asia stocks.

“Japan will be pumping lots of money into its financial
system, which would lure foreign investors back to emerging
markets such as South Korea and Taiwan,” said Robert Hsieh, an
assistant vice president at Shin Kong Financial’s fund arm.

The Bank of Japan is expected to keep policy on hold at its
two-day meeting that started on Wednesday, but signal its
readiness to embark on further easing as damage from the
earthquake threatens to tip the economy back into recession.

In contrast, there are strong expectations the European
Central Bank will bump its key policy rate up 25 basis points
from a record low 1 percent on Thursday to curb inflationary
pressures, with markets already pricing in more tightening later
in the year.

The euro bought around 121.60 yen , having rise as
far as 121.89 yen, its highest in 11 months, and the Australian
dollar was at 88.30 yen , having reached a
two-and-a-half year high of 88.68 yen.

The dollar rose 0.6 percent to 85.35 yen, having scaled a
six-month peak of 85.53 yen . The U.S. currency has surged
12 percent from its post-World War Two low of 76.25 yen hit in
March, days after Japan’s northeast was devastated by the
magnitude 9.0 earthquake and tsunami.

The euro traded around $1.4268 , matching a five-month
high reached on Monday.

Minutes of last month’s Federal Reserve policy-setting
meeting, released on Tuesday, showed the U.S. central bank
appeared intent to complete a $600 billion bond-buying plan and
to keep rates at exceptionally low levels for an extended
period. [ID:nN05147451]

With both the Fed and BOJ keeping ultra-loose monetary
policy in place, investors have been using the yen and dollar as
funding currencies to buy higher yielding assets, including
currencies tied to commodity markets such as the Australian
dollar, or where policymakers are expected to allow appreciation
to help dampen inflation.

“Foreign investors appear to be taking on a yen carry
trade,” said Kim Soo-young, a market analyst at KB Investment &
Securities in Seoul.

TIGHTENING CYCLE

Copper prices rose in London and Shanghai futures
jumped 1 percent (SCFcv1: Quote, Profile, Research) after a two-day holiday.

Past Chinese rate rises have been seen as negative for
stocks and commodities on the worry that a slowing economy might
crimp China’s growing demand for industrial raw materials,
manufacturing components and, increasingly, finished goods.

But the latest 25 basis point rise, announced by Beijing
late Tuesday, was viewed as just the latest step in a tightening
cycle which has been going on for some time and was expected to
continue.

“The market has become comfortable with tighter Chinese
policy,” said a metals trader in Singapore.

“We were looking at three rate rises this year so it’s not
unexpected and they also seem to be in the habit of announcing
these things during market holidays.”

Brent crude (LCOc1: Quote, Profile, Research) eased 0.2 percent to $122 a barrel,
having jumped to a two-and-a-half year high on Tuesday. U.S.
crude (CLc1: Quote, Profile, Research) weakened 0.2 percent to $108.17 a barrel.

Gold traded around $1,453.15 an ounce, after rising
as far as $1,456.85 on Tuesday.

Japanese government bond futures fell, hurt by a slide in
U.S. Treasuries, with June 10-year futures down 0.29 point at
138.98, while the benchmark 10-year yield rose 2.5 basis point
to 1.295 percent.

(Editing by Richard Borsuk)

GLOBAL MARKETS-Yen falls as BOJ meets, non-Japan Asia stocks gain