By Wayne Cole
SYDNEY (Reuters) - Asian markets got the new year off to a sluggish start as Chinese economic data disappointed ahead of a raft of reports on global manufacturing due out through the session.
The early action was in currencies, where the yen resumed its long decline as investors used it to fund purchases of higher-yielding assets abroad.
The drop in the yen has been viewed as positive for Japanese exports and corporate earnings, and a major reason its share markets outperformed all others last year.
Japan's Nikkei (NIK:^9452) will be closed on Thursday and Friday. The index ended 2013 with an annual gain of 57 percent, and many analysts look for a further advance this year as the Bank of Japan remains committed to its massive stimulus campaign.
Nomura's global strategy team is forecasting that Japanese equities will provide the greatest return of all global stocks in 2014, thanks in large part to rising corporate earnings.
They see the Nikkei at 18,000 by the end of this year, up from the current 16,291, and said even 25,000 was possible by 2018 should Prime Minister Shinzo Abe's aggressive economic program prove successful in defeating deflation.
Asian markets outside of Japan had a much more mixed performance in 2013, partly because investors rediscovered the attractions of assets in Europe and the United States.
MSCI's broadest index of Asia-Pacific shares outside Japan <.MIAPJ0000PUS> ended last year essentially flat, and early on Thursday it was off 0.15 percent.
Not helping was a drop in China's official Purchasing Managers' Index (PMI) to 51.0 in December, from 51.4 the previous month and below forecasts for 51.2.
Analysts at Barclays noted the pullback of activity in the survey was broadbased across industry sectors and sizes.
"Besides the need for deepening reforms and addressing structural issues such as reducing overcapacity and controlling local government debt, we think elevated interest rates across the money, bond and credit markets have led to higher funding costs, hurt corporate sentiment and thus weigh on economic growth," they wrote in a client note.
They expected China's central bank to maintain its tightening bias for a while yet.
HSBC and Markit release their measure of manufacturing activity later on Thursday and that has also been pointing to some slowdown in growth.
A whole slew of manufacturing indices for Europe and the U.S. are due out across Thursday which will offer a better idea of how global industry was faring into the end of the year.
Markets reacted to the China data by knocking the Australian dollar down a quarter of a U.S. cent. China is Australia's single biggest export market and the currency is often used as a liquid proxy for risk in the Asian giant.
For other major currencies the main themes continued to be weakness in the yen and resilience in the euro.
The single currency was up at 144.97 yen having clocked up gains of 26 percent over 2013 to reach a five-year peak of 145.67. The dollar was likewise firm at 105.38 yen having climbed 21 percent last year.
The euro was a shade softer on the dollar at $1.3754, but still not far from its recent two-year peak of $1.3892.
Dealers suspect the single currency has been supported by the repatriation of funds by European banks and a large and expanding current account surplus in the euro zone.
But there remains a general assumption rising U.S. Treasury yields will eventually lift the dollar up on the euro. Yields on U.S. 10-year paper are up at two-and-a-half year highs of 3.03 percent. Even shorter-dated rates have been rising as improving U.S. economic data justifies the Federal Reserve's decision to start tapering its asset-buying stimulus.
Outgoing Fed Chairman Ben Bernanke is giving a speech on Friday and may offer more guidance on the outlook for tapering.
In commodity markets, gold remained on the defensive at $1,204.49 an ounce, having suffered its biggest annual loss in three decades last year.
U.S. oil Futures were trading 28 cents higher on Thursday at $98.67 a barrel.
(Editing by John Mair)