GLOBAL MARKETS-Asian shares creep ahead, count on Fed being benign

Reuters

* Asian markets cautiously firmer ahead of 1800 GMT Fedannouncement

* US stocks hit historic highs on hopes Fed maintainsstimulus

* Vulnerable to any surprise in timing of Fed tapering

By Wayne Cole

SYDNEY, Oct 30 (Reuters) - Asian share markets took heartfrom record highs in U.S. stocks on Wednesday as investorswagered the Federal Reserve would rock no boats at its policymeeting and leave stimulus in place for the next few months atleast.

Japan's Nikkei led the way with a gain of 1.2percent, while Australian shares added 0.4 percent and Shanghai 0.5 percent. MSCI's index of Asia-Pacific shares outsideJapan crept up 0.3 percent.

A mixed bag of economic data caused few frowns since itmerely reinforced expectations the Fed will maintain the statusquo when its two-day policy meeting ends on Wednesday.

Even the U.S. dollar got a lift as dealers judged theprospect of easy money for longer had now been pretty muchdiscounted following two months of losses.

Markets seem to be operating on the assumption that the Fed's policy statement will not challenge the growing consensusthat any tapering of its $85 billion of monthly asset purchaseswill not start until March at the earliest.

Such an outcome would be taken as justifying the rallies instocks and bonds seen in recent weeks and might have only alimited impact on prices in the near term.

But it also means markets are vulnerable to a surprise.

"With expectations of taper firmly kicked into 2014 the riskthat the FOMC could decide to move earlier looks asymmetrical,"said Patrick Perret-Greene, an analyst at Australia and NewZealand Bank.

"If the Fed does nothing tomorrow then nothing reallyhappens but if they do something or even hint at moves in thenot too distant future the effects could be dramatic."

The Fed's decision is due at 1800 GMT, though divining its true message may be tricky as no new economic forecasts arereleased and nor will Chairman Ben Bernanke be giving a newsconference.

BE BORING, PLEASE

For now, markets are counting on the Fed being boring.

The Dow Jones industrial average ended Tuesday 0.72percent higher at an all-time closing peak of 15,680.35.

The S&P 500 gained 0.56 percent, aided further by ajump in heavyweight IBM after the company's board ofdirectors approved another $15 billion for stock buy-backs.

The flow of economic data proved too mixed to offerdirection. Industrial output bounced in Japan, but disappointedin South Korea due to strikes at auto makers.

In the United States, a measure of core retail sales showedsurprising resilience in September, yet a grim survey ofconsumers highlighted the heavy toll the recent governmentshutdown had taken on the public mood.

In currencies, dollar bears looked exhausted after twomonths of selling and the currency bounced broadly. The dollarindex reached a one-week peak of 79.667 , havingclimbed 0.5 percent on Tuesday. Just last Friday, it had plumbeda nine-month low at 78.998.

"Fed meetings have not been friendly to the USD this year,with the dollar weakening following every meeting in 2013 withthe exception of June," analysts at BNP Paribas wrote in aclient note.

"However, with markets already having adjusted to a muchmore dovish view on the Fed outlook, we think the USD is likelyto hold up better this time."

The euro slipped to $1.3737, pulling away from a23-month peak of $1.3833 set just a few days ago. The dollarfirmed to 98.18 yen, from its recent trough of 96.94.

Yields on the benchmark 10-year Treasury note were steady at 2.506 percent after dipping from a high of 2.5360on Tuesday. The market has enjoyed a substantial rally in thepast two months with yields falling all the way from 3 percent.

Spot gold edged back to $1,343.24 an ounce as thedollar gained, but is still up more than 7 percent from athree-month low hit mid-October.

Brent oil futures lost 36 cents to $108.65 a barrelwhile U.S. crude oil dipped 58 cents to $97.62..

Traders termed this a consolidation after a big gain onMonday when reports of a sharp drop in Libyan oil exportsrekindled worries over global supply.

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