By Marc Jones
LONDON (Reuters) - World shares fell for a second day and gold was near a five-month low on Tuesday, as concern the U.S. will soon scale back its economic stimulus offset reports that Japan would ramp up its own stimulus.
Upbeat U.S. economic data on Monday suggested the Federal Reserve is tilting towards reducing its bond-buying program. Then signs the Bank of Japan will shovel more cheap money into its economy saw the yen slide and pushed Japanese stocks towards a six-year high.
European shares (.FTEU3) opened in no such mood, however. A drop of 0.6 percent took their losses for the week to 1 percent, as investors looked ahead to Thursday's ECB and BoE meetings and Friday's key U.S. jobs data.
The euro was hovering at just over $1.35 and at a 5-year high versus the yen. Portugal's plans for a debt swap to get in shape for a possible return to borrowing markets next year dominated attention in bond markets.
"It is going to be interesting to see how the market reacts to Portugal's debt exchange," said Suvi Kosonen, a fixed income analyst for Nordea in Helsinki. "Most of the market attention, though, is already turning to the ECB on Thursday and the U.S. non-farm payrolls in the U.S. on Friday."
The interest in Portugal's debt swap meant Lisbon's stock market<.PSI20> and the country's government bonds were virtually the only ones in Europe to sidestep losses.
Ukraine also remained in focus after massive protests against President Viktor Yanukovich's decision to move away from Europe towards Russia. Ukrainian financial markets got hammered on Monday amid talk of a currency crisis.
Despite the turmoil, Yanukovich left Ukraine on Tuesday for a state visit to China.
Investors otherwise remained fixated on Federal Reserve's plans for winding down the stimulus program that has helped drive this year's huge rally in global risk assets.
U.S. 10-year Treasury yields, the benchmark for the world's borrowing costs, were hovering just under the high of 2.8 percent they hit on Monday after global data signaled world growth was still gathering steam.
The U.S. Institute for Supply Management's index of national factory activity rose in November to its best showing since April 2011. Hiring also accelerated.
Friday's nonfarm payrolls report is expected to offer more clues as to when the Fed will start reducing its monthly $85 billion bond purchases.
"A drop in the unemployment rate from 7.3 percent to 7.0 percent would fan tapering fears, preventing U.S. Treasuries from reversing course even on a lackluster 150k NFP," Societe Generale said in a note.
With the U.S. Treasury yields moving higher, so did the appeal of the dollar. It hit a six-month high of 103.38 yen and sat just short of a 4 1/2-year high reached in May. The yen was also weighed down by the speculation that the Bank of Japan may expand its already massive stimulus.
According to officials briefed on the process, the bank is looking to go beyond its $70 billion-a-month bond-buying program. Options include major purchases of stock-market-linked funds or other assets riskier than Japanese government bonds, the insiders said.
AUSSIE DOLLAR DOWN
Despite robust export numbers and strong retail data, the Australian dollar dropped towards a three-month low after the Reserve Bank of Australia left rates on hold and said the currency was "still uncomfortably high.
Gold, meanwhile, traded near a five-month low amid the fears of an early end to Fed stimulus, and the metal looked vulnerable to further declines with the jobs data looming.
Spot gold saw a small rebound to $1,222 an ounce in early trading in London following Monday's 2.6 percent fall, but it remained close to its lowest levels since early July.
U.S. crude prices gained 0.2 percent to around $94 a barrel, adding to a 1.2 percent rise overnight. Brent inched up to $111.50.
(Editing by Simon Cameron-Moore & Shri Navaratnam & Larry King)