By Marc Jones
LONDON (Reuters) - The dollar pulled back from an eight-month low and shares began cautiously on Tuesday as investors awaited delayed U.S. jobs data, half suspecting that this month's acrimonious budget tussle in Washington will have diluted their value.
Many in the markets already believe the Federal Reserve will delay trimming its $85 billion-a-month bond-buying programme, which has supported riskier assets like shares, at least until the impact of the partial government shutdown becomes clearer.
While a strong non-farm payrolls report at 1230 GMT may renew the debate over whether the Fed could start the process this year, any impact will be couched by the figures - forecast to show employers added 180,000 jobs last month - pre-dating the shutdown.
"Markets are going to be quite nervous and swinging around on the employment data," said Daniel Loughney, a portfolio manager at Alliance Bernstein.
"Unless we get a very clear number the volumes are going to be staying low - the markets are voting with their feet."
The dollar added 0.1 percent against a basket of major currencies in early European trading, as investors saw the opportunity to hedge their bets after the greenback's near six percent drop over the last few months.
European share markets started almost unchanged, with buyers happy to sit on the sidelines after world stocks hit a five-year high on Monday on hopes Fed stimulus will last far longer than had been forecast just weeks ago.
Investors were also reluctant to make aggressive bets after U.S. stocks ended little changed on Monday, partly on concerns that equities have become overpriced after the S&P 500 index's run to record highs last week.
MSCI's broadest index of Asia-Pacific shares outside Japan eased 0.2 percent, dropping from a five-month peak. Technical charts indicated it remained in "overbought" territory, indicating there could be a further retreat.
Bucking the trend, Tokyo's Nikkei inched up 0.13 percent in light trade, while Australia's S&P/ASX 200 logged its sixth day of gains as it rose 0.4 percent to a fresh five-year high.
DOLLAR FINDS FEET
The dollar has borne the brunt of the recent volatile U.S. conditions, firstly after the Fed opted against cutting its stimulus in September and then as the ugly budget spat in Washington pushed the country close to a default.
By 0800 GMT it was holding up 0.1 percent at $1.3674 to the euro, off an eight-month low of $1.3704 marked on Friday, and gained by similar margin against the yen, at 98.31 yen, adding to Monday's 0.4 percent bounce.
"A (jobs) reading anywhere in the 160,000 to 190,000 range would probably be fairly neutral with respect to near-term U.S. dollar direction given the data pre-dates any impact from the October shutdown," BNP Paribas analysts wrote in a note.
"We remain short euro/dollar and sterling/dollar heading into the release, looking for gradual improvement in U.S. data," they said.
Europe's bond markets were seeing little movement ahead of the data, with benchmark German Bunds and euro zone periphery debt all broadly steady.
It was a similar story for commodities. Gold was flat at $1,315 an ounce, while U.S. and Brent crude prices hovered at $99 and 110 a barrel respectively, after rising stockpiles of oil saw U.S. prices hit near four-month lows on Monday.
Many analysts expect the U.S. central bank to maintain its quantitative easing (QE) given the as-yet-unknown economic impact of the shutdown and the possibility of another bitter budget fight early next year.
Charles Evans, a senior Fed policymaker, said on Monday it would be "tough" for the central bank to have sufficient confidence in the strength of the U.S. recovery by the time of its meeting in December to start reducing its $85 billion-per-month bond-buying programme.
"The common view in the market is that the U.S. is essentially trapped in QE," said Andrew Quin, research strategy coordinator at Patersons Securities in Perth, Australia.
"So at least until new debt ceiling negotiations get agreed probably in February, we doubt they are going to do too much."
(Reporting by Marc Jones; editing by Patrick Graham)