Asian shares inch down, dollar on top of the heap

TOKYO (Reuters) - Asian shares inched lower early on Wednesday after a lackluster day on Wall Street, while the dollar was close to 14-month highs against a basket of major currencies after data underscored that the U.S. economy's modest expansion continues to chug along.

The Institute for Supply Management said its U.S. manufacturing activity index rose to 59.0 in August, the strongest since March 2011. July construction spending was at its highest level in over 5-1/2 years.

U.S. manufacturers fared better last month than their European and Asian counterparts, which bore the brunt of the impact of the Ukraine crisis and China's uneven demand.

"As economic and monetary policy divergence between the U.S. and the rest of the world widens, the dollar will become more attractive to foreign investors, providing room for further gains," Kathy Lien, managing director at New York's BK Asset Management, said in a note to clients.

MSCI's broadest index of Asia-Pacific shares outside Japan was down 0.1 percent in early trade after Wall Street marked a mixed day, though the upbeat U.S. economic data underpinned shares and limited losses.

Japan's Nikkei stock average bucked the trend and added 0.8 percent as the yen weakened.

The dollar edged up 0.1 percent on the day to 105.19 yen after topping the 105 level overnight for the first time since January. It rose as high as 105.22 yen on Tuesday, with its 2014 peak of 105.45 yen in sight.

The dollar was steady against a basket of major currencies at 82.987 after rising as high as 83.039 on Tuesday, its highest since July 2013.

The euro, which touched a one-year low of $1.3110 on expectations that the European Central Bank will take further easing steps, was steady on the day at $1.3130.

Some investors say the ECB could unveil fresh stimulus as early as Thursday, after French President Francois Hollande and ECB President Mario Draghi agreed on Monday that deflation and weak growth were threatening the European Union's economy.

Rising U.S. yields lent more lustre to the dollar, as the benchmark 10-year U.S. yield posted its biggest daily rise in a month after markets were closed on Monday for Labor Day. The 10-year yield stood at 2.419 percent in Asia, steady from Tuesday's U.S. close.

The buoyant dollar pressured prices of dollar-based commodities. Spot gold steadied at $1,266.06 an ounce after plunging 1.7 percent in the previous session as the dollar spiked higher. [GOL/]

Brent crude oil futures fell to the lowest level in 16 months overnight on slowing oil demand growth in China and Europe, while ample supplies pushed U.S. prices to their lowest level since January. U.S. crude inched up 0.3 percent on the day to $93.15 a barrel, after plunging $3.08 on Tuesday. [O/R]


(Editing by Eric Meijer)