Asia stocks, euro hit as ECB takes hard line on Greek debt

By Shinichi Saoshiro

TOKYO (Reuters) - Asian stocks were mostly lower and the euro slipped on Thursday after the European Central Bank said it would not accept Greek bonds as collateral - a robust early response to Athens's efforts to renegotiate bailout terms with creditors.

Spreadbetters expected the Greek situation would take a toll on European equities, forecasting Britain's FTSE (FTSE) to open down by as much as 0.6 percent, Germany's DAX (GDAXI) to fall 0.9 percent and France's CAC (FCHI) down 1.1 percent.

Risk appetite, which had warmed earlier in the week on hopes that Greece would swiftly win relief from its creditors, took a hit after the ECB abruptly pulled back its soft treatment of Greek debt and canceled its acceptance of the country's bonds as collateral.

Japan's Nikkei (N225), which surged 2 percent on Wednesday, dropped 0.8 percent. Shares in South Korea, Malaysia and Singapore were also significantly lower. MSCI's broadest index of Asia-Pacific shares outside Japan (MIAPJ0000PUS) was down 0.1 percent after climbing 1 percent the previous day.

Chinese equities bucked the trend, with the Shanghai Composite Index (SSEC) rising 1 percent, after the central bank cut the level of reserves banks must hold.

Wednesday's move, intended to boost bank lending and energize China's sputtering economy, failed to lift the mood in the rest of the region.

"Although the move by PBOC does ease credit and may be beneficial to stimulating demand, it is also a clear sign that growth in China is declining at faster rate than previously thought and as such could have dampening effect on demand throughout the Asia region," Boris Schlossberg, managing director at BK Asset Management, wrote in a note to clients.

China's easing drove down most emerging Asian currencies such as the South Korean won and Indonesian rupiah.

"It will increase expectations for more easing by Asian central banks. It will put pressure on Asian FX to weaken," said Sean Yokota, head of Asia strategy for Scandinavian bank SEB, in Singapore.

Investors also became more risk-averse as an extended rally in crude oil petered out. Wall Street snapped a two-day surge overnight, weighed by a slide in energy shares.

Crude oil plunged overnight in one of its biggest daily falls ever as record high U.S. oil inventories ended a four-day rally. U.S. crude was down 0.3 percent at $48.31 a barrelafter sinking 9 percent on Wednesday. [O/R]

Among major currencies the euro traded at $1.1348 <EUR/USD>, having fallen as far as $1.1304. It has completely reversed a short-covering rally that lifted it to $1.1534 on Tuesday.

The dollar was little changed at 117.215 yen <USD/JPY>, with the market awaiting the U.S. employment-related data later in the session as a preview to Friday's all important non-farm payrolls.

Forex - Australia dollar holds early gains as retail sales mixed

The Australian dollar held early gains on Thursday with retail sales mixed and a focus overall on concerns Greece will be unable to reach agreement on restructuring its sovereign debt.

AUD/USD traded at 0.7769, up 0.22%, while USD/JPY changed hands at 117.15, down 0.01%. EUR/USD traded at 1.1343, down 0.01%.

Late Wednesday, the European Central Bank abruptly cancelled its acceptance of Greek bonds in return for funding. The move means the Greek central bank will have to provide its banks with tens of billions of euros of additional emergency liquidity in coming weeks.

China's late Wednesday move to cut the amount of cash banks keep in reserve to 19.5% from 20.0%, also played out on the currency market Thursday as Beijing moves to boost lending and spur economic activity in the world’s second largest economy.

In Australia, December retail sales rose 0.2% month-on-month,below a 0.4% gain month-on-month expected, but at a fourth quarter gain of 1.5% quarter-on-quarter, above 1.0% expected.

Retail sales rose less than expected in December but, on a quarterly volume basis, exceeded consensus thanks to strong growth in household goods and an increase in clothing and footwear and department-store sales.

Overnight, the dollar pushed higher against the other major currencies on Wednesday, boosted by data showing that U.S. service sector activity grew at a faster rate than expected in January, while concerns over Greece's future in the euro zone continued to weigh on sentiment.

In a report, the Institute of Supply Management said its non-manufacturing purchasing manager's index increased to 56.7 last month from a reading of 56.2 in December. Analysts had expected the index to inch up to 56.3 in January.

The data came after payroll processing firm ADP said non-farm private employment rose by 213,000 last month, below expectations for an increase of 225,000.

The economy created 253,000 jobs in December, whose figure was upwardly revised from a previously reported 241,000.

The U.S. dollar index, which measures the greenback’s strength against a trade-weighted basket of six major currencies, was quoted at 94.52, down 0.06%.