GLOBAL MARKETS-Asian shares fall, dollar drifts ahead of Fed

Reuters

* European shares seen opening slightly lower

* Dollar index edges up, stays above recent nine-month low

* Australian shares fall from 5-year high; Stevens' commentspressure Aussie

* Lacklustre U.S. data reinforces view Fed will hold steady

* Brent crude slips after surging on Libya supply concerns

By Lisa Twaronite

TOKYO, Oct 29 (Reuters) - Asian shares withered and thedollar lurked just above its recent lows on Tuesday, asinvestors awaited confirmation the U.S. Federal Reserve willstay the course with stimulus at its policy meeting this week.

European markets were tipped to open not far from theirprevious closes, with financial spreadbetters predictingBritain's FTSE 100 to open down about 0.3 percent;Germany's DAX, which touched a fresh record high of9,017.95 points on Monday, to open down about 0.1 percent; andFrance's CAC 40 to open steady to slightly higher.

Australian shares ended down 0.5 percent aftersurging 1 percent on Monday to a new five-year high, whileMSCI's broadest index of Asia-Pacific shares outside Japan was down about 0.3 percent in late trade.

Japan's Nikkei stock average gave up 0.5 percent,but ended off its session lows.

Economists and market participants expect no change to theFed's $85 billion monthly asset purchase programme at itstwo-day meeting ending on Wednesday. Most predict the centralbank to delay any stimulus tapering until at least March.

Monday's U.S. economic data offered nothing to alter thisview. U.S. manufacturing output barely rose in September andcontracts to buy previously owned homes fell the most in nearly3-1/2 years, showing economic activity was on a weak footingeven before the 16-day partial shutdown of the U.S. government,which is expected to trim fourth quarter growth.

"The soft industrial production report, plus thelarger-than-expected decline in pending home sales, is unlikelyto give comfort to FOMC policymakers who await stronger economicdata before initiating tapering," strategists at Barclays wrotein a client note.

U.S. S&P E-mini futures were down about 0.1 percent,after the S&P 500 Index closed at a record high in NewYork on Monday.

One factor that had weighed on investors' minds in recentsessions faded on Tuesday, as China's money rates stabilisedafter the central bank resumed open market operations for thefirst time since Oct. 15. This eased worries that theauthorities were preparing to dramatically tighten monetarypolicy.

"With Tuesday's injection, people are even more confidentthat the government will not change its neutral monetary policyfor now, although the PBOC will stick to its pro-tight stance inmanaging the liquidity," said a senior trader at a Chinesestate-owned bank in Beijing.

India's central bank took another tightening step onTuesday, raising its policy interest rate for the second time inas many months as it warned that inflation is likely to remainelevated for the rest of the fiscal year.

DOLLAR INDEX EDGES AWAY FROM 9-MONTH LOW

The dollar index, which tracks the greenback against abasket of six major currencies, added about 0.1 percent to79.344, holding above a nine-month low of 78.998 hit onFriday.

The dollar shed about 0.1 percent against its Japanesecounterpart to 97.54 yen, but managed to stay above amore than two-week low of 96.92 yen hit on Friday, according toReuters data.

The Bank of Japan also meets this week, and is expected tomaintain its monetary policy on Thursday as it aims for itstarget of 2 percent inflation in two years.

The International Monetary Fund's top official for Asia saidon Tuesday that an increase in Japanese foreign directinvestment and bank lending to Asia has helped counteractcapital outflows triggered by expectations that the Fed would taper its asset-buying programme.

The euro was nearly flat on the day at $1.3787, notfar from Friday's high of $1.3832, its highest level sinceNovember 2011.

The Australian dollar tumbled after Australiancentral bank governor Glenn Stevens said it was likely theAussie would fall materially in the future, given the country'sdeclining terms of trade. That shift would be welcomed byAustralian exporters.

The Aussie last stood at $0.9508, down 0.6 percent and welloff a five-month high of $0.9758 last Wednesday.

In commodities trading, spot gold was slightly higheron the day at $1,352.96 an ounce after rising to a five-weekhigh of $1,356.50 on Monday.

Copper fell about 0.4 percent to $7,165 in the wakeof the downbeat U.S. economic data.

U.S. crude futures edged down about 0.2 percenttowards $98 a barrel but held within sight of a one-week high asa sharp drop in Libyan oil exports rekindled worries oversupply. Brent crude slipped 0.4 percent to $109.13 after surging$2.68 in the previous session.

Libya's crude oil exports have dropped to less than 10percent of capacity as protests have halted operations atwestern ports and fields.

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