Asian shares edge up ahead of Fed meeting

By Lisa Twaronite

TOKYO (Reuters) - Asian shares drifted higher on Monday after a downbeat session on Wall Street kept sentiment in check, while the euro recovered from a fresh 12-year low touched on the divergent monetary policy paths between the United States and the euro zone.

Oil continued to tumble, with U.S. crude dropping more than 2 percent at one point to a six-year low amid oversupply fears. The International Energy Agency said on Friday that the global supply glut is growing and U.S. production shows no sign of slowing.

U.S. crude shed about 1.5 percent to $44.18 a barrel, while Brent crude lost about 0.9 percent to $54.18.

MSCI's broadest index of Asia-Pacific shares outside Japan (MIAPJ0000PUS) was up about 0.1 percent, erasing early losses and remaining above last week's seven-week trough.

Chinese shares outperformed, rising to five-year-highs after Premier Li Keqiang said that Beijing had plenty of scope to adjust policies in order to boost the world's second largest economy.

The CSI300 index (CSI300) added 2 percent and the Shanghai Composite Index (SSEC) gained 1.9 percent.

"Investors have nothing to fear now because the message is that if economic growth continues to slow, there will be more stimulus measures," said Tian Weidong, analyst at Kaiyuan Securities in Xi'an in northwest China.

Friday's weak U.S. inflation data failed to derail expectations that the Federal Reserve will tighten monetary policy, and U.S. shares slumped on concerns about the impact of higher rates and a stronger dollar on corporate profits. The S&P 500 (SPX) marked its third straight losing week, though it stood just 3 percent below its record high set early this month.

Investors' main focus this week is on the Fed's two-day meeting beginning on Tuesday. After successive months of strong jobs data, expectations have been growing that the Fed will point towards a June rate rise by dropping a pledge to be "patient" in considering such a move.

Data on Friday showed that U.S. producer prices fell in February for a fourth straight month, pointing to tame inflation that suggests the central bank has scope to hold off.

Japan's Nikkei stock average (N225) ended slightly down after notching a fresh 15-year intraday high on Monday and logging its fifth straight winning week.

The Bank of Japan will announce its latest policy decision on Tuesday, a day before the Fed, and is widely expected to maintain its aggressive quantitative and qualitative asset-buying programme to stoke growth and sustainable inflation of 2 percent.

"Rises in bank and other domestic demand-oriented shares symbolises an improved confidence that the economy is getting out of deflation," said Takashi Hiroki, chief strategist at Monex Securities in Tokyo.

DOLLAR DOWN BUT CLOSE TO HIGHS

The dollar took a breather from its recent rally, but remained close to multi-year highs.

The euro slipped as low as $1.0457 early in the Asian session, its lowest since January 2003, but then rebounded to $1.0537, up about 0.4 percent on the day.

Still, the euro has lost roughly a quarter of its value versus the dollar since around the middle of 2014. It suffered its biggest weekly fall since September 2011 last week, shedding 3.2 percent as the European Central Bank launched its 1.1 trillion euro bond-buying stimulus programme.

Goldman Sachs now expects the euro to slide to $0.80 by the end of 2017.

Against the yen, the euro edged up about 0.2 percent to 127.66 (EURJPY=R), but remained not far from a 21-month trough of 126.86 set on Friday.

The dollar index (DXY) lost ground due to the euro's retracement, losing about 0.4 percent to stand at 99.898, but it remained not from a 12-year high of 100.420.

Against its Japanese counterpart, the dollar shed about 0.3 percent on the day to 121.17 , but was still not far from a nearly eight-year high of 122.04 hit on Tuesday.