Investors take to the trenches for China trade, U.S. jobs

By Wayne Cole

SYDNEY (Reuters) - Asian markets were set for a tense session Friday as reports on Chinese trade and U.S. jobs have the power to cause convulsions by shifting the outlook for monetary policy in the world's two largest economies.

In subdued early trading, MSCI's broadest index of Asia-Pacific shares outside Japan had barely budged, while Australia's market eased 0.2 percent.

For Asia the focus will be on Chinese trade numbers for a sense of how global demand is faring. Median forecasts are for exports to rise 4.9 percent in December, from a year ago, while imports are seen up 5.3 percent.

This series does tend to surprise, however, and any weakness will likely pressure shares across the region along with commodity currencies such as the Australian dollar.

Concerns about a slowdown in China, for instance, were cited as one reason copper fell 1.8 percent on Thursday in its biggest one-day drop since November.

The Chinese numbers will be just an appetiser compared to the U.S. jobs report.

Payrolls are forecast to have risen by a solid 196,000 in December, according to a Reuters survey of economists, just below November's count of 203,000. As ever for this volatile series estimates ranged widely from 120,000 to 235,000.

The jobless rate is expected to stay at 7.0 percent though there was some risk of a higher number should the participation rate rise from its unusually low levels.

Investors are not sure whether to be pleased the world's largest economy is recovering, or worried it might bring forward the day when the Federal Reserve starts hiking rates.

The worry seemed to be winning out this week with futures markets shifting sharply to price in a much earlier start to Fed tightening. Fed fund futures are now fully priced for a hike to 0.5 percent by July 2015. Not long ago the market had been wagering on early 2016.

The hesitancy was evident on Wall Street, where the Dow (.DJI) fell 0.11 percent, while the S&P 500 (.SPX) ended flat and the Nasdaq (.IXIC) dropped 0.23 percent.

Alcoa Inc (AA.N) kicked off the earnings season by reporting better revenues but also a big quarterly loss as it took a $1.7 billion non-cash impairment charge on past smelter acquisitions. Its shares fell 2.8 percent in extended-hours trading.

DRAGHI MAKES DOVISH NOISES

In currencies the only action came after European Central Bank President Mario Draghi underlined the bank's determination to act should inflation risk turning into deflation or rising money market rates threaten a fragile recovery.

"The ECB's monthly press conference was very dovish in light of the current weakness in euro area inflation," said Dylan Eades an economist at Australia and New Zealand Bank.

"ECB President Draghi left the market in no doubt that the ECB will act again if necessary."

The euro duly fell over half a U.S. cent on those words, only to meet broad demand around $1.3548 which saw it recoup all the losses. On Friday, it was steady at $1.3601 with dealers now wary of trying to short the currency.

Tight ranges held across most other major currencies, with the dollar stuck at 104.85 yen and the euro at 142.59 yen. Against a basket of currencies the dollar was a whisker easier at 80.950 (.DXY).

Gold was likewise sidelined at $1,228.10 an ounce.

U.S. crude futures bounced 57 cents to $92.21 a barrel after hitting an eight-month trough at $91.24 overnight. Brent crude had closed Thursday down 71 cents at $106.44 per barrel.

(Editing by Eric Meijer)