Nikkei posts best Nov since 2005, yen slumps to five-year low vs euro

By Dominic Lau

TOKYO (Reuters) - Japanese stocks faltered slightly on Friday after hitting their highest closing level in nearly six years in the previous session, but still revelled in the sliding yen to record their best November performance since 2005.

Investors nibbled at other regional equities, however, with the MSCI Asia-Pacific outside Japan index edging up 0.2 percent after reaching its highest close in a week on Thursday.

Financial bookmakers expected UK, Germany and French stocks to open steady, though Spanish assets were likely to be in focus after rating agency Standard & Poor's raised its outlook on Spain to stable from negative and affirmed its BBB-minus rating.

Japan's benchmark Nikkei dropped 0.4 percent, though it was still up 9.3 percent this month as the yen slumped against the euro and dollar.

Investors have been using the yen as a funding currency for carry trades with the Bank of Japan committed to keeping ultra-loose monetary policy to shore up growth -- in contrast to the U.S. Federal Reserve which is moving towards unwinding its $85 billion-a-month bond-buying campaign.

The Japanese currency hit a five-year low versus the euro at 139.705 yen, and a six-month trough of 102.61 yen to the dollar.

The yen is down 4.3 percent versus the euro this month, heading for its weakest monthly performance since March, while it is off 4 percent against the greenback -- and set for its biggest one-month fall since January.

Data on Friday showed Japanese consumer inflation accelerated to a five-year high and factory output rose for a second straight month in October, more evidence the recovery in the world's third-largest economy should extend into 2014.

"Industrial production was good but it was below consensus. Gradually, the market is coming to believe the BOJ will be forced to react again sometime next year," said Kyoya Okazawa, head of global equities and commodity derivatives at BNP Paribas in Tokyo.

"A short-term correction might be possible because of funds' year-end book-closing ... fundamentally, there is no reason to short the market, only profit-taking," he added.

Powered by Tokyo's aggressive fiscal and monetary stimulus, the Nikkei has rallied nearly 51 percent this year. If the gains were to hold for the rest of this year, it would be the best yearly rise since 1972.

LITTLE SHOWING

By contrast, the MSCI Asia-Pacific ex-Japan index is up a meagre 1.6 percent so far this year.

The Asian gauge has also sharply underperformed a 26.7 percent jump in the U.S. Standard & Poor's 500 and a 16.3 percent rise in the STOXX Europe 600 index.

Trading across most markets was light, as U.S. financial markets closed for Thursday's Thanksgiving holiday and will have half-day session on Friday.

Ahead of the euro zone inflation data later in the day, the euro scaled a one-month high of $1.3622.

Preliminary German consumer prices harmonised with other European Union countries accelerated in November, suggesting euro zone inflation could come in higher than expected -- reducing pressure on the ECB to take further action to avoid deflation.

The Australian dollar stood at $0.9097 after earlier skidding to a near three-month low of $0.9055.

Analysts at BNP Paribas recommended investors short the euro against the Norwegian crown, sterling and the Australian dollar.

"In addition to the ECB next week, the RBA, Norges Bank and BOE have meetings next week. We think the dovish policy of the ECB will stand in contrast to these other central banks next week, helping push the euro crosses lower," they said in a note.

Among commodities, gold inched down 0.1 percent to just below $1,242 an ounce, having risen 0.5 percent overnight on signs of physical demand from Chinese buyers.

Brent crude stabilised at about $110.8 a barrel after shedding 0.4 percent in the previous session.

(Editing by Shri Navaratnam and Eric Meijer)