Asia stocks head for weekly loss, China yuan hits four-and-a-half-year low

By Lisa Twaronite

TOKYO (Reuters) - Asian shares were set for sizable weekly losses, with equities faltering again on Friday as plunging crude oil prices and a tumble in China's yuan to almost 4-1/2-year lows added to worries about receding global growth.

A supply glut in oil markets and cooling growth in China, the world's biggest commodities consumer, have pressured many asset markets ahead of a widely expected hike to U.S. interest rates by the Federal Reserve next week.

MSCI's broadest index of Asia-Pacific shares outside Japan erased early modest gains and was down about 0.6 percent, facing a nearly 3 percent weekly loss.

The gloom was expected to carry into European trading, with financial spreadbetters predicting Britain's FTSE 100 (FTSE) would open down by as much as 0.3 percent. Germany's DAX (GDAXI) was seen as much as 0.1 percent lower, while France's CAC (FCHI) expected to shed up to 0.3 percent.

The People's Bank of China (PBOC) set its guidance rate at the weakest level in more than four years on Friday, a sign Beijing is permitting the currency to depreciate after it was included in the International Monetary Fund's reserve basket.

The lower fixings have also raised questions about how far the central bank intends to let it depreciate.

In the spot market, the yuan was changing hands at 6.4499, after taking out its August low hit after the unexpected devaluation of the Chinese currency and marking its lowest level since the middle of 2011.

"A U.S. rate hike would have a major impact on money flows out of emerging markets including Hong Kong and China," said Linus Yip, chief strategist at First Shanghai Securities.

"Also, if the yuan continues to depreciate, that's negative to stocks as well, because it means investors are not confident about China's economic restructuring."

Chinese shares were lower ahead of a spate of economic data scheduled to be released on Saturday.

The CSI300 index <.CSI300> of the largest listed companies in Shanghai and Shenzhen was down 0.5 percent, while the Shanghai Composite Index <.SSEC> shed 0.7 percent.

Also weighing on the market mood were media reports that Guo Guangchang, chairman and founder of Chinese conglomerate Fosun, could not be reached.

JAPAN MARKETS WELCOME WEAKER YEN

Japan's Nikkei stock index (N225) bucked the trend, buoyed by overnight gains on Wall Street and a weaker yen, and ended up 1 percent. But it was still logged a loss of 1.4 percent for the week.

The dollar index (DXY), which tracks the U.S. unit against a basket of six major rivals, edged up slightly to 97.953. But it was on track for a weekly loss of about 0.4 percent after investors trimmed dollar-long positions ahead of next week's U.S. Federal Reserve meeting at which the central bank is widely expected to hike interest rates for the first time in nearly a decade.

Fed fund futures place an 85 percent chance of the Fed raising rates at its Dec. 15-16 meeting. A recent Reuters poll also showed that all but one of 18 brokerages that deal directly with the Fed expect a rate increase.

The euro edged up about 0.1 percent to $1.0947, up about 0.6 percent for the week after comments from the European Central Bank's Ewald Nowotny this week raised doubts about the extent to which U.S. and European monetary policy will diverge.

The dollar added 0.3 percent against its Japanese counterpart to 121.95 but was still down around 0.9 percent for the week.

Despite this week's softer dollar, crude oil futures continued to wallow close to 2009 lows on oversupply fears. U.S. crude (CLc1) fell 0.6 percent to $36.55 a barrel. Brent (LCOc1) skidded 0.6 percent to $39.49.

South Africa's rand, meanwhile, plumbed record lows against the U.S. dollar after the abrupt dismissal of respected Finance Minister Nhlanhla Nene to make room for an ally of President Jacob Zuma.

The rand sunk as low as 15.4895 against the greenback, and was last at 15.4480.