Asian shares inch higher on solid China trade data

TOKYO (Reuters) - Asian shares edged up on Friday after China's trade data for January handily beat forecasts to underscore a recovery trend, but prices were capped by investors seeking to book profits before next week's Chinese new year holidays.

The MSCI's broadest index of Asia-Pacific shares outside Japan <.miapj0000pus> edged up 0.2 percent, wiping earlier losses when bearish sentiment was carried over from overnight after European Central Bank President Mario Draghi noted risks still facing the euro zone economy. The pan-Asian index rose to a 18-month high on Monday.

China said its exports grew 25.0 percent in January from a year ago, the strongest showing since April 2011 and well ahead of market expectations for a 17 percent rise, while imports also beat forecasts, surging 28.8 percent on the year.

"China's economic conditions are improving and the trade data confirms the continuation of a recovery trend. Not just the trade data but retail, production and investment flows clearly show that the economy bottomed out in the third quarter last year," said Hirokazu Yuihama, a senior strategist at Daiwa Securities in Tokyo.

U.S. stocks edged lower while disappointing results from French drugmaker Sanofi sent European shares down to 2013 closing lows.

Australian shares rose 0.5 percent while South Korean shares <.ks11> climbed 0.6 percent, on track to reverse six losing sessions as investors bought up auto shares after recent declines.

Japan's Nikkei stock average <.n225> fell 1.4 percent as investors took profits from the index's surge to a its highest level since October 2008 on Wednesday. <.t/>

"Asian markets are undergoing a pre-holiday adjustment, keeping prices top-heavy, with many opting to book profits. Prices have gained sharply over the past months, so a correction is healthy. But the upward trend in Asian equities markets remains intact," Daiwa's Yuihama said.

EURO STEADIES

The euro was off its two-week lows hit the previous session as investors took Draghi's comments as signalling concerns about the euro and Europe's growth outlook, boosting the dollar <.dxy> to a one-month high against a basket of key currencies.

The euro edged up 0.1 percent to $1.3410, after slumping to a two-week low of $1.33705 on Thursday, but still below a 14-1/2-month high against of $1.3711 hit last week.

The ECB kept interest rates at a record low 0.75 percent at its policy meeting on Thursday. Draghi said the ECB will monitor the economic impact of a strengthening euro, feeding expectations the currency's climb could open the door to an interest rate cut.

While Draghi said the exchange rate was not a policy target but is important for growth and price stability, he also noted the euro's appreciation was a sign of returning confidence in the currency.

Spain sold more debt than planned on Thursday, auctioning over 18 percent of its full-year medium- and long-term funding target. The strong demand indicated easing worries about Madrid's financing ability despite political uncertainty over a corruption scandal.

The yen remained near lows against the dollar and the euro.

Data showed on Friday Japan logged a current account deficit for a second straight month in December, resulting in its smallest annual surplus on record in 2012, with evidence of deteriorating trade balances supporting the yen's weakening trend.

"Japan will remain a nation of current account surpluses but the surplus will not be as high as it used to be," said Takeshi Minami, chief economist at Norinchukin Research Institute in Tokyo.

The dollar eased 0.1 percent to 93.53 yen after reaching 94.075 yen, its highest since May 2010 on Wednesday. The euro inched up 0.1 percent to 125.43 yen, having hit its strongest since April 2010 of 127.71 yen on Wednesday.

"Currencies are increasingly becoming part of the policy debate...In the case of the EUR, we believe that the bullish 'overshooting' trend will remain intact as ECB policy continues to promote an asset market friendly environment," Morgan Stanley said in a note.

Morgan Stanley added that the anticipation of the Bank of Japan taking bolder easing steps is set to keep the weak yen trend going, supporting global risk appetite.

U.S. crude futures and Brent were both up 0.2 percent to $96.01 a barrel and $117.48 respectively.

London copper added 0.5 percent to $8,241 a tonne.

(Editing by Eric Meijer)

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Asian shares pause, caution before ECB

TOKYO (Reuters) - Asian shares and the euro paused on Thursday, with investors seeking clues from European Central Bank President Mario Draghi on growth prospects for the euro zone economy at a policy meeting later in the day, amid optimism that the worst may be over.

Japanese equities underperformed Asian bourses as a break in the yen selling pulled them from Wednesday's four-year peak. But shorter-dated Japanese government debt rallied, sending two-year JGB yields to their lowest since September 2002 at 0.030 percent, on expectations that the central bank will cut interest rates to zero.

The yen's broad weakness has been driven by expectations for radical reflationary policy from the Bank of Japan, under Prime Minister Shinzo Abe's push for a mix of anti-deflation policies.

"Hopes for 'Abenomics' are supporting the mood, but investors are also sensitive to the currency moves, so right now, even small uncertainty on Europe can be a reason to pull back," said Hiroichi Nishi, an assistant general manager at SMBC Nikko Securities.

Japan's Nikkei stock average <.n225> fell 0.8 percent, as investors took profits on export-driven firms. The benchmark closed at its highest level since October 2008 the day before when the yen slipped to fresh lows. <.t/>

The MSCI's broadest index of Asia-Pacific shares outside Japan <.miapj0000pus> was down 0.1 percent near a one-week low, after reaching a 18-month high on Monday. Asia tracked overnight lackluster U.S. stocks, with Standard & Poor's 500 Index <.spx> ending nearly flat after a five-year high earlier in the week.

Australian shares gained 0.3 percent, outperforming their Asian peers, on a rise in iron ore prices supporting the top miners and on higher earnings from National Australia Bank and Telstra Corp. Australian jobs data for January beat market expectations.

Recent data suggesting a moderate global economic recovery, even if it lacked strong momentum, underpinned industrial metals, keeping London copper prices near four-month highs and platinum and palladium near their highest level in 17 months on hopes of a better demand.

Data from deflation-swamped Japan was also positive, with the country's core machinery orders surging unexpectedly in December for a third straight month of increases and firms expect more improvement in the first quarter.

But analysts said Asian economies were still relying on exports to power their way to growth.

"One of the pillars of our bullish view on Asian currencies at the start of the year was the theme of global rebalancing, in which Asian economies would move away from export-dependent growth models towards a more domestic demand-driven model, allowing their currencies to appreciate to dampen their export competitiveness in favor of stronger terms of trade," said Morgan Stanley in a research note.

"However, Asian economies have been slower in the rebalancing process than we had envisioned, as seen by the heavy physical and verbal FX intervention this year."

FATE OF DRAGHI MAGIC

Growing optimism that the euro zone economy may be nearing a bottom has propelled the euro to a 14-1/2-month high against the dollar, a 34-month peak against the yen and 15-month top on sterling.

The ECB is expected to keep interest rates at a record low 0.75 percent at later on Thursday. Traders will focus on any comments about the euro's recent strength as well as the bank's view on the euro zone economy.

Vassili Serebriakov, strategist at BNP Paribas, said the ECB will likely reason that the euro's strength is due to real improvement in the financial markets and economic outlook, and thus does not warrant immediate action.

"That said, our economists suggest that Mr. Draghi will probably soften the overall tone at the press conference, signaling that easing options are still available if needed," Serebriakov wrote in a client note.

Draghi's strong verbal commitment to defend the euro and the ECB's new bond-buying scheme to help ease funding strains in highly indebted euro zone members had significantly reduced risks of the region crumbling under the weight of its debt woes.

But a corruption scandal in Spain and uncertainty over the outcome of an Italian election later this month brought market focus back to the region's potential political instability.

Later on Thursday, Spain will test investor appetite by offering up to 4.5 billion euros of bonds.

The euro eased 0.1 percent to $1.3505. It hit a 14-1/2-month high against the dollar of $1.3711 last week and a 34-month peak against the yen of 127.71 on Thursday.

The dollar eased 0.2 percent to 93.45 yen after touching 94.075 yen, its highest since May 2010 on Wednesday. The euro fell 0.3 percent at 126.17 yen, off Wednesday's 127.71 yen, its strongest since April 2010.

U.S. crude rose 0.2 percent to $96.81 a barrel.

(Additional reporting by Ian Chua in Sydney and Ayai Tomisawa in Tokyo; Editing by Sanjeev Miglani)

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Asian shares recover on firm euro zone data, yen slips

TOKYO (Reuters) - Asian shares recovered on Wednesday as solid euro zone data calmed nerves jarred by potential political turmoil in Spain and Italy, while the prospect of a dovish new governor for the Bank of Japan dragged the yen to a new low.

Sentiment for other risk assets also improved, pushing London copper up 0.4 percent to $8,302.75 a tonne to a near four-month high, while Brent crude hovered near a 20-week high. Signs of recovery taking root in Europe, the United States and China have helped improve the demand outlook.

The MSCI's broadest index of Asia-Pacific shares outside Japan <.miapj0000pus> added 0.3 percent, tracking an overnight gain in global equities on data showing the U.S. services sector extended a three-year expansion in January and business activity in the euro zone climbed to a 10-month high last month.

The Standard & Poor's 500 Index <.spx> and the Nasdaq Composite Index <.ixic> gained over 1 percent.

In Asia, investors have been quick to book profits as prices approached their highs, but analysts and traders say any dip was likely to be seen as a chance to buy back into the market.

The pan-Asian index scaled a 18-month high on Monday, and was up about 2.3 percent so far this year, considerably modest compared to the S&P's nearly 6 percent gain in the same period.

Australian shares <.axjo> jumped 0.9 percent, leading the regional peers.

"We're following on from a pretty good lead from global markets last night," said Steve Daghlian, market analyst at Commonwealth Securities, of Australian equities.

Brent crude was up 0.2 percent to $116.72 a barrel while U.S. crude was barely changed at $96.64.

Japanese equities and government bonds rose while the yen touched fresh lows on expectations for stronger reflationary policies from the BOJ.

The dollar touched 93.91 yen to its highest since May 2010, while the euro also rose to 127.65 yen, its loftiest since April 2010. The Aussie reached a 4-1/2 year peak around 97.42 yen. The pound touched a 3-year high near 147.25 yen.

Yen selling resumed after Bank of Japan Governor Masaaki Shirakawa said he would step down on March 19, three weeks earlier than the official end of his five-year term, leaving at the same time as his two deputies, and raising the prospect that the next BOJ governor will more readily adopt the expansionist monetary policy demanded by Prime Minister Shinzo Abe.

"The Bank of Japan is about to get a lot more dovish, and sooner than previously thought," said Christopher Vecchio, a currency analyst at DailyFX.

Japan's benchmark Nikkei stock average <.n225> soared 3.1 percent to a 33-month high. <.t/>

"I think the market could yet rise when they announce the new governor's name, particularly if it makes an asset purchase budget of 50 trillion yen ($535 billion) from the BOJ more likely," said Norihiro Fujito, senior investment strategist at Mitsubishi UFJ Morgan Stanley.

The 10-year JGB yield fell 1.5 basis points to 0.775 percent after opening higher, at 0.800 percent.

The euro drew support from growing confidence in the region's economy and improving funding conditions for deeply-indebted euro zone members.

News the European Central Bank's balance sheet fell to an 11-month low of 2.8 trillion euros ($3.8 trillion) as markets unwound some of the ECB's crisis funding measures underpinned the euro, coming in stark contrast to the U.S. Federal Reserve and the BOJ which keep expanding asset buying.

"Flows matter more than stock in currency markets when comparing central bank balance sheets ... highlighting the euro's outperformance over the last few months," said Ashraf Laidi, chief global strategist at City Index, in a note to clients.

The euro was steady at $1.3578, above a key technical support of its 14-day moving average at $1.34653.

The ECB is expected to keep interest rates unchanged at its policy meeting on Thursday, but its president may face a grilling over an Italian banking scandal.

Spanish and Italian yields fell on Tuesday after jumping on worries over a corruption scandal in Spain and polls showing Italy's former prime minister Silvio Berlusconi regaining ground before elections this month.

The yen's fall lifted benchmark Tokyo gold futures to a record high of 5,067 yen per gram on Wednesday.

(Additional reporting by Ian Chua and Thuy Ong in Sydney and Ayai Tomisawa and Sophie Knight in Tokyo; Editing by Sanjeev Miglani)

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Asian shares drop on euro zone worry, soft U.S. data

TOKYO (Reuters) - Asian shares slid on Tuesday as investors saw opportunities to cash in from recent strong rallies in the face of weak U.S. data and worries that a potential political shake-up could disrupt the eurozone's efforts to resolve its debt crisis.

The MSCI's broadest index of Asia-Pacific shares outside Japan <.miapj0000pus> tumbled 0.8 percent, dragged lower by a steep 1.8 percent fall in Hong Kong shares <.hsi>.

The euro took the brunt of renewed focus on the euro zone problems, having risen 2.3 percent so far this year against the U.S. dollar, up about 5.4 percent against sterling and 1.8 percent higher against the Australian dollar.

The euro eased 0.1 percent to $1.3496, retreating further from Friday's 14-1/2-month peak of $1.3711, ahead of the European Central Bank's policy meeting on Thursday.

The euro's fall helped euro/crosses recover, underpinning such currencies as the Australian dollar against the U.S. unit.

Aussie eased 0.1 percent to $1.0423 after the Reserve Bank of Australia kept its cash rate steady at 3.0 percent, as expected, having just cut in December.

Spain's opposition party on Sunday called for Prime Minister Mariano Rajoy to resign over a corruption scandal, an allegation Rajoy denies, pushing Spanish 10-year bond yields to six-week highs.

In Italy, 10-year Italian government bond yields hit their highest since late December, as chances of former prime minister Silvio Berlusconi regaining power raised worries about Rome's ability to fix its fiscal problems.

"Markets have been increasingly comfortable with European risks over the past few months and are largely not positioned for this increase in political problems. The outcomes in Spain and Italy are far from certain and may represent stumbling blocks for further expansion in risk appetite," Barclays Capital said in a research note.

The yen took a breather, firming from lows against a broad range of currencies.

The dollar was down slightly at 92.31 yen after scaling its highest since May 2010 of 93.185 on Monday, while the euro eased 0.1 percent to 124.61 yen, off its loftiest since April 2010 of 126.97 hit on Friday.

"Markets are broadly undergoing a correction and the euro is definitely facing profit-taking, given the pace of its climb. Worries about the euro zone debt crisis always remain a downside risk for the euro, and could push it lower to $1.32-$1.33," said Hiroshi Maeba, head of FX trading Japan at UBS in Tokyo. "But the trend is still upward for dollar/yen, cross/yen. The dollar could reach 95 yen by the end of the month."

As long as markets hold out expectations for the Bank of Japan to implement aggressive monetary easing to beat decades of deflation in Japan, the yen will stay pressured. Any correction to the dollar's rise against the yen was also be seen as shallow, with many traders and analysts seeing a firm floor around 87-88 yen.

Relatively positive data from China on Tuesday failed to change the bearish mood, weighed down by a fall in overnight U.S. equities, which have rallied 6 percent so far this year, on discouraging U.S. factory orders and euro zone jitters.

The HSBC services purchasing managers' index rose to a four-month high of 54 in January from December's 51.7, underlining confidence in the world's second-biggest economy, which is expected to grow 8.1 percent this year, off a 13-year low of 7.8 percent hit in 2012.

"The data globally is unquestionably better but the recovery still seems gradual. (China) hit the bottom and they had a bit of a bounce but nothing much else happened. We don't really seem to have preconditions for a much stronger bounce than that (8 percent growth)," said Richard Yetsenga, Head of Global Markets at ANZ Research.

Japan's benchmark Nikkei stock average <.n225> fell 1.3 percent, after scaling a 33-month high on Monday. <.t/>

U.S. stocks slid on Monday, leaving the Standard & Poor's 500 Index <.spx> at its worst day since November after the index rose just 60-odd points away from its all-time intraday high of 1,576.09 on Friday.

(Editing by Eric Meijer)

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Asian shares advance after U.S. jobs, ISM

TOKYO (Reuters) - Asian shares advanced on Monday, drawing momentum from U.S. data showing some promise of a credible recovery, supported by Federal Reserve's easing plans and solid manufacturing data from Europe and China.

The yen took a break from heavy selling against the U.S. dollar and the euro, but fell to its lowest since August 2008 against the Australian and New Zealand dollars early on Monday on confidence of bold monetary support from the Bank of Japan to overcome the country's stubborn deflation.

The MSCI's broadest index of Asia-Pacific shares outside Japan <.miapj0000pus> rose 0.6 percent after posting a weekly gain of 0.7 percent.

"Asian shares are likely to take the cues from the rise in U.S. equities and prices of risk assets are generally expected to face upward pressures," said Naohiro Niimura, a partner at research and consulting firm Market Risk Advisory.

The Dow Jones industrial average <.dji> rose to 14,000 for the first time since October 2007 and the Standard & Poor's 500 Index <.spx> hit its highest point since December of that year.

U.S. data showed on Friday payrolls rose by 157,000 last month, with upward revisions for November and December, while the Institute for Supply Management said its index of national factory activity rose to its highest since April.

China followed with positive news over the weekend, saying growth in its official purchasing managers' index (PMI) for the non-manufacturing sector ticked up in January for the fourth straight monthly rise, confirming the world's second-largest economy was showing a modest recovery.

Resources-reliant Australian shares <.axjo> steadied after jumping 0.9 percent to a 21-month high on Friday. Positive economic news from China, Australia's largest export destination, usually boosts Australian investor sentiment.

South Korean shares <.ks11> were up 0.3 percent while Hong Kong shares <.hsi> added 0.7 percent.

NIKKEI MAY BE PEAKING

Japan's benchmark Nikkei stock average <.n225> rose 0.5 percent after climbing to a fresh 33-month high earlier as the yen declined. The index logged its 12th straight week of increases last week, the longest run of weekly gains since 1959. <.t/>

Nikkei has been moving in tandem with the yen's two-month-long losing streak with investors eyeing the change in the BOJ's top personnel in April for clues on the degree of the bank's reflationary policy.

"The Nikkei may be nearing its peak for now as we may get a specific name of the most likely candidate for the next BOJ governor soon. That may provide an opportunity to close long dollar/yen positions, while a firming yen will then likely spur investors to book profits on Japanese stocks," said Tetsuro Ii, the chief executive of Commons Asset Management.

The dollar eased 0.1 percent to 92.72 yen after scaling its highest since May 2010 of 92.97 on Friday, while the euro fell 0.3 percent to 126.32 yen, still near its loftiest since April 2010 of 126.97 touched on Friday.

In early Monday trade, the yen plunged to its lowest since August 2008 against both the Australian dollar, at 96.78 yen, and against the New Zealand dollar at 78.74 yen.

The euro inched down 0.1 percent to $1.3624, off Friday's 14-1/2-month peak of $1.3711 hit after data showed euro zone factories had their best month in January in nearly a year.

On Friday, the dollar index measured against a basket of key currencies fell to a 4-1/2-month low of 78.918 <.dxy>. The index was up 0.2 percent on Monday.

As economic optimism rose and concerns about the euro zone's debt difficulties eased, investors took on more risk.

Research provider TrimTabs Investment Research said on Saturday investors poured a record $77.4 billion in new cash into stock mutual funds and exchange-traded funds in January, surpassing the previous monthly record of $53.7 billion in February 2000.

In the oil market, tension across the Middle East put Brent crude on track to its biggest weekly gain since mid-November, and U.S. crude rose for an eighth straight week, although it eased 0.2 percent to $97.56 a barrel on Monday.

With the rise in equities on recovering appetite for riskier assets, safe-haven appeal waned, pushing up yields of U.S. Treasury bonds. The U.S. 10-year Treasury yield hit a nine-month high of 2.052 percent in Asia on Monday.

A weekly gauge of sentiment in the Japanese government bond market deteriorated sharply, remaining in negative territory for a fifth straight week as rising global appetite for risk sapped demand for bonds, the latest Reuters poll showed on Monday.

(Editing by Eric Meijer)

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"Great Rotation"- A Wall Street fairy tale?

NEW YORK (Reuters) - Wall Street's current jubilant narrative is that a rush into stocks by small investors has sparked a "great rotation" out of bonds and into equities that will power the bull market to new heights.

That sounds good, but there's a snag: The evidence for this is a few weeks of bullish fund flows that are hardly unusual for January.

Late-stage bull markets are typically marked by an influx of small investors coming late to the party - such as when your waiter starts giving you stock tips. For that to happen you need a good story. The "great rotation," with its monumental tone, is the perfect narrative to make you feel like you're missing out.

Even if something approaching a "great rotation" has begun, it is not necessarily bullish for markets. Those who think they are coming early to the party may actually be arriving late.

Investors pumped $20.7 billion into stocks in the first four weeks of the year, the strongest four-week run since April 2000, according to Lipper. But that pales in comparison with the $410 billion yanked from those funds since the start of 2008.

"I'm not sure you want to take a couple of weeks and extrapolate it into whatever trend you want," said Tobias Levkovich, chief U.S. equity strategist at Citigroup. "We have had instances where equity flows have picked up in the last two, three, four years when markets have picked up. They've generally not been signals of a continuation of that trend."

The S&P 500 rose 5 percent in January, its best month since October 2011 and its best January since 1997, driving speculation that retail investors were flooding back into the stock market.

Heading into another busy week of earnings, the equity market is knocking on the door of all-time highs due to positive sentiment in stocks, and that can't be ignored entirely. The Standard & Poor's 500 Index <.spx> ended the week about 4 percent from an all-time high touched in October 2007.

Next week will bring results from insurers Allstate and The Hartford , as well as from Walt Disney , Coca-Cola Enterprises and Visa .

But a comparison of flows in January, a seasonal strong month for the stock market, shows that this January, while strong, is not that unusual. In January 2011 investors moved $23.9 billion into stock funds and $28.6 billion in 2006, but neither foreshadowed massive inflows the rest of that year. Furthermore, in 2006 the market gained more than 13 percent while in 2011 it was flat.

Strong inflows in January can happen for a number of reasons. There were a lot of special dividends issued in December that need reinvesting, and some of the funds raised in December tax-selling also find their way back into the market.

During the height of the tech bubble in 2000, when retail investors were really embracing stocks, a staggering $42.7 billion flowed into equities in January of that year, double the amount that flowed in this January. That didn't end well, as stocks peaked in March of that year before dropping over the next two-plus years.

MOM AND POP STILL WARY

Arguing against a 'great rotation' is not necessarily a bearish argument against stocks. The stock market has done well since the crisis. Despite the huge outflows, the S&P 500 has risen more than 120 percent since March 2009 on a slowly improving economy and corporate earnings.

This earnings season, a majority of S&P 500 companies are beating earnings forecast. That's also the case for revenue, which is a departure from the previous two reporting periods where less than 50 percent of companies beat revenue expectations, according to Thomson Reuters data.

Meanwhile, those on the front lines say mom and pop investors are still wary of equities after the financial crisis.

"A lot of people I talk to are very reluctant to make an emotional commitment to the stock market and regardless of income activity in January, I think that's still the case," said David Joy, chief market strategist at Columbia Management Advisors in Boston, where he helps oversee $571 billion.

Joy, speaking from a conference in Phoenix, says most of the people asking him about the "great rotation" are fund management industry insiders who are interested in the extra business a flood of stock investors would bring.

He also pointed out that flows into bond funds were positive in the month of January, hardly an indication of a rotation.

Citi's Levkovich also argues that bond investors are unlikely to give up a 30-year rally in bonds so quickly. He said stocks only began to see consistent outflows 26 months after the tech bubble burst in March 2000. By that reading it could be another year before a serious rotation begins.

On top of that, substantial flows continue to make their way into bonds, even if it isn't low-yielding government debt. January 2013 was the second best January on record for the issuance of U.S. high-grade debt, with $111.725 billion issued during the month, according to International Finance Review.

Bill Gross, who runs the $285 billion Pimco Total Return Fund, the world's largest bond fund, commented on Twitter on Thursday that "January flows at Pimco show few signs of bond/stock rotation," adding that cash and money markets may be the source of inflows into stocks.

Indeed, the evidence suggests some of the money that went into stock funds in January came from money markets after a period in December when investors, worried about the budget uncertainty in Washington, started parking money in late 2012.

Data from iMoneyNet shows investors placed $123 billion in money market funds in the last two months of the year. In two weeks in January investors withdrew $31.45 billion of that, the most since March 2012. But later in the month money actually started flowing back.

(Additional reporting by Caroline Valetkevitch; Editing by Kenneth Barry)

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"Great Rotation"- A Wall Street fairy tale?

NEW YORK (Reuters) - Wall Street's current jubilant narrative is that a rush into stocks by small investors has sparked a "great rotation" out of bonds and into equities that will power the bull market to new heights.

That sounds good, but there's a snag: The evidence for this is a few weeks of bullish fund flows that are hardly unusual for January.

Late-stage bull markets are typically marked by an influx of small investors coming late to the party - such as when your waiter starts giving you stock tips. For that to happen you need a good story. The "great rotation," with its monumental tone, is the perfect narrative to make you feel like you're missing out.

Even if something approaching a "great rotation" has begun, it is not necessarily bullish for markets. Those who think they are coming early to the party may actually be arriving late.

Investors pumped $20.7 billion into stocks in the first four weeks of the year, the strongest four-week run since April 2000, according to Lipper. But that pales in comparison with the $410 billion yanked from those funds since the start of 2008.

"I'm not sure you want to take a couple of weeks and extrapolate it into whatever trend you want," said Tobias Levkovich, chief U.S. equity strategist at Citigroup. "We have had instances where equity flows have picked up in the last two, three, four years when markets have picked up. They've generally not been signals of a continuation of that trend."

The S&P 500 rose 5 percent in January, its best month since October 2011 and its best January since 1997, driving speculation that retail investors were flooding back into the stock market.

Heading into another busy week of earnings, the equity market is knocking on the door of all-time highs due to positive sentiment in stocks, and that can't be ignored entirely. The Standard & Poor's 500 Index <.spx> ended the week about 4 percent from an all-time high touched in October 2007.

Next week will bring results from insurers Allstate and The Hartford , as well as from Walt Disney , Coca-Cola Enterprises and Visa .

But a comparison of flows in January, a seasonal strong month for the stock market, shows that this January, while strong, is not that unusual. In January 2011 investors moved $23.9 billion into stock funds and $28.6 billion in 2006, but neither foreshadowed massive inflows the rest of that year. Furthermore, in 2006 the market gained more than 13 percent while in 2011 it was flat.

Strong inflows in January can happen for a number of reasons. There were a lot of special dividends issued in December that need reinvesting, and some of the funds raised in December tax-selling also find their way back into the market.

During the height of the tech bubble in 2000, when retail investors were really embracing stocks, a staggering $42.7 billion flowed into equities in January of that year, double the amount that flowed in this January. That didn't end well, as stocks peaked in March of that year before dropping over the next two-plus years.

MOM AND POP STILL WARY

Arguing against a 'great rotation' is not necessarily a bearish argument against stocks. The stock market has done well since the crisis. Despite the huge outflows, the S&P 500 has risen more than 120 percent since March 2009 on a slowly improving economy and corporate earnings.

This earnings season, a majority of S&P 500 companies are beating earnings forecast. That's also the case for revenue, which is a departure from the previous two reporting periods where less than 50 percent of companies beat revenue expectations, according to Thomson Reuters data.

Meanwhile, those on the front lines say mom and pop investors are still wary of equities after the financial crisis.

"A lot of people I talk to are very reluctant to make an emotional commitment to the stock market and regardless of income activity in January, I think that's still the case," said David Joy, chief market strategist at Columbia Management Advisors in Boston, where he helps oversee $571 billion.

Joy, speaking from a conference in Phoenix, says most of the people asking him about the "great rotation" are fund management industry insiders who are interested in the extra business a flood of stock investors would bring.

He also pointed out that flows into bond funds were positive in the month of January, hardly an indication of a rotation.

Citi's Levkovich also argues that bond investors are unlikely to give up a 30-year rally in bonds so quickly. He said stocks only began to see consistent outflows 26 months after the tech bubble burst in March 2000. By that reading it could be another year before a serious rotation begins.

On top of that, substantial flows continue to make their way into bonds, even if it isn't low-yielding government debt. January 2013 was the second best January on record for the issuance of U.S. high-grade debt, with $111.725 billion issued during the month, according to International Finance Review.

Bill Gross, who runs the $285 billion Pimco Total Return Fund, the world's largest bond fund, commented on Twitter on Thursday that "January flows at Pimco show few signs of bond/stock rotation," adding that cash and money markets may be the source of inflows into stocks.

Indeed, the evidence suggests some of the money that went into stock funds in January came from money markets after a period in December when investors, worried about the budget uncertainty in Washington, started parking money in late 2012.

Data from iMoneyNet shows investors placed $123 billion in money market funds in the last two months of the year. In two weeks in January investors withdrew $31.45 billion of that, the most since March 2012. But later in the month money actually started flowing back.

(Additional reporting by Caroline Valetkevitch; Editing by Kenneth Barry)

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Asian shares retreat after China PMI, U.S. payrolls eyed

TOKYO (Reuters) - Asian shares wiped earlier gains on Friday as a tepid Chinese manufacturing report dented sentiment, leaving investors on tenterhooks ahead of U.S. nonfarm payroll data due at 1330 GMT.

China's official purchasing managers' index (PMI) eased to 50.4 in January, the National Bureau of Statistics said on Friday, missing market expectations for a rise and underscoring the fragility of the recovery from the economy's weakest year since 1999.

But a separate private survey showed that growth in China's giant manufacturing sector hit a two-year high in January as domestic demand strengthened, underlining hopes the nation's economic recovery is slowly gaining momentum.

"It seems new orders for exports have declined even when new orders overall rose, suggesting that infrastructure spending and other investment to spur domestic demand is needed to keep (China's) economy growing," said Naohiro Niimura, a partner at research and consulting firm Market Risk Advisory.

"But it's not going to change the view about the Chinese economy recovering. The official data was just neither good nor bad."

The MSCI's broadest index of Asia-Pacific shares outside Japan <.miapj0000pus> slipped 0.2 percent from the morning's 0.2 percent gain.

Australian shares <.axjo> were up 0.6 percent, little changed from before the data came out, drawing support from major mining stocks which gained on a jump in iron ore prices.

But the resources-linked Australian dollar fell 0.2 percent to session lows around $1.040.

With Chinese data news done for the day, investors turned to the U.S. nonfarm payrolls report, which is forecast to show a rise of 160,000 jobs and the unemployment rate to remain steady at 7.8 percent.

U.S. stocks edged lower on Thursday on caution ahead of the jobs report, but the benchmark Standard & Poor's 500 Index <.spx> posted its best monthly gain since October 2011 with a 5.1 percent rise and the best January showing since 1997.

Japan's benchmark Nikkei stock average <.n225> outperformed its Asian peers with a 0.2 percent rise, supported by the yen's decline earlier to fresh lows against major currencies.<.t/>

The dollar steadied around 91.75 yen, having earlier risen as high as 91.87, a level not seen since June 2010. The euro touched 125.05, its highest since May 2010. In January alone, the common currency surged nearly 9 percent on the yen, while the dollar was up more than 5 percent.

Oil and copper prices were higher and the euro remained bid against the dollar, reflecting that jitters was not spreading beyond Asian equities as sentiment has recently been underpinned by falling stress in the euro zone and generally improved data globally.

The euro added 0.3 percent to $1.3613 to the dollar, after earlier reaching a fresh 14-month high of $1.3624. The common currency's strength has pushed the dollar index to a one-month low of 79.107 <.dxy> on Friday.

"The euro revival looks set to continue for some time, as investors return to euro zone bond markets, content with the combination of the European Central Bank backstop for sovereign risk and low inflation danger due to lack of economic growth. The dollar bloc looks to be a key loser in the portfolio reallocation back into EUR," Westpac bank said in a note.

U.S. crude futures inched up 0.1 percent to $97.56 a barrel while Brent rose 0.3 percent to $115.90.

London copper added 0.5 percent to $8,203 a tonne.

Earlier, a private survey showed South Korea's manufacturing sector activity marginally shrank in January after a small rise in December but new export orders grew for the first time in eight months.

Manufacturing purchasing managers' indexes from the United States and the euro zone, as well as the Institute for Supply Management's manufacturing index, are also due later in the session.

(Editing by Eric Meijer)

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Asian shares off highs, Fed's stance underpins markets

TOKYO (Reuters) - Asian shares took a breather from recent rallies on Thursday though sentiment was underpinned by the U.S. Federal Reserve's pledge to retain its stimulus policy and on signs of stabilization in the euro zone.

Positive economic reports from Asia failed to lift markets as investors continued to assess regional earnings results and ahead of key data such as China's official manufacturing PMI and U.S. monthly nonfarm payrolls on Friday.

The MSCI's broadest index of Asia-Pacific shares outside Japan <.miapj0000pus> fell 0.4 percent after rising 1.3 percent over the past two sessions to nearly an 18-month high. The index was set for a monthly gain of about 2.4 percent.

Australian shares <.axjo> eased 0.4 percent, taking a breather from their 10-day winning streak, the longest in more than nine years, which hoisted local shares to 21-month highs.

"Certainly 2013 has started with an air of optimism. U.S. politicians show some willingness to deal with problems, no fresh issues have emerged in Europe and the Chinese economy is exhibiting firmer growth. Volatility has receded with investors keen to put cash to work in other asset classes," said Craig James, a strategist at CommSec in Sydney.

Southeast Asian stock markets were generally softer but remained near their highs. The Philippines <.psi> hit a record high for the third day running on Wednesday and Thailand's <.seti> market surged to a more than 18-year high on Wednesday.

The Federal Reserve on Wednesday kept in place its monthly $85 billion bond-buying stimulus plan, arguing the support was needed to lower unemployment.

Underscoring the Fed's cautious view, data on Wednesday showed the U.S. economy unexpectedly contracted in the fourth quarter. Still, a lot of that weakness came from a plunge in defense spending, suggesting the underlying fundamentals were not as bad as the headline figures indicated.

In Asia, the data on Thursday provided cause for optimism. Taiwan raised its economic growth forecast for 2013, after the fourth quarter expanded faster than expected and posted its best growth in five quarters on improved demand for the island's electronics exports and stronger consumption.

"Taiwan's economic growth will be better this year as Europe's outlook is becoming positive, it will have a bigger rebound as an export-oriented economy," said Scott Chen, economist at Sinopac Commercial Bank in Taipei.

The Philippines said on Thursday its economy grew 1.5 percent in the December quarter from the previous three months, better than market forecasts.

YEN OFF LOWS

Japan's benchmark Nikkei stock average <.n225> shed 0.6 percent after soaring 2.3 percent to a 33-month high the day before, taking its cue from the yen firming from fresh lows hit on Wednesday. <.t/>

"It's too early to take profit," a trader at a foreign bank said. "People should look for names which are still undervalued, still haven't moved (in line with the rally in the Nikkei) and could outperform."

Prime Minister Shinzo Abe's approach of revitalizing Japan's economy through an aggressive mix of fiscal steps and monetary easing is expected to keep the yen on a weakening path.

The dollar eased 0.3 percent to 90.81 yen after reaching 91.41 yen on Wednesday, its highest since June 2010. The euro also fell 0.3 percent to 123.24 yen, after hitting 123.87 on Wednesday, its peak since May 2010.

Japan's December factory output rose at the fastest pace in a year and a half and firms expect further gains, raising hopes that stabilizing global demand and exports will help pull the economy from its slump.

EUROPE IMPROVING

The euro held near a 14-month high of $1.3588 scaled on Wednesday.

Reports from the euro zone on Wednesday underscored views that the debt crisis-hit region may be overcoming the worst, with economic sentiment improving more than expected across all sectors in January and a gauge for the phase of the business cycle also rising this month.

"The rise in the EUR is a sign of the success of the European Central Bank on the credit front, which matters far more than a short term rise in EUR/USD. Money is flowing into Europe and from North back to the South or from ECB funding to money market funding," Sebastien Galy, strategist at Societe Generale, said in a note to clients.

Spot gold hovered near its one-week high of $1,683.39 an ounce reached on Wednesday.

U.S. crude futures steadied around $97.93 a barrel and Brent crude was up 0.2 percent to $115.09.

(Additional reporting by Dominic Lau in Tokyo and Miranda Maxwell in Melbourne; Editing by Jacqueline Wong and Shri Navaratnam)

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Asian shares gain on global recovery outlook, eyes Fed

TOKYO (Reuters) - Asian shares rose to their highest level in nearly 18 months on Wednesday as strong U.S. data further boosted investor confidence in global economic outlook, ahead of the U.S. Federal Reserve's monetary policy decision due later in the session.

Optimism over economic recovery on strong U.S. housing market and China's economic growth forecast for 2013 raised expectations for stronger demand for fuel and industrial commodities, underpinning oil prices and lifting copper.

The MSCI's broadest index of Asia-Pacific shares outside Japan <.miapj0000pus> rose 0.6 percent, building on the previous day's 1 percent rally which snapped a four-day losing streak. Gains were led by a 1 percent rise in the energy sector <.miapjen00pus>.

London copper added 0.6 percent to $8,153.25 a tonne while U.S. crude oil held steady around $97.58 a barrel after rising more than 1 percent on Tuesday on expectations of higher demand. Brent also was steady around $114.35.

"Sentiment has changed this year, with signs of stabilization in the euro zone, a U.S. economic recovery and a shift to a new Chinese political regime removing obstacles which had stood in the way of investors taking risks last year," said Xiao Minjie, an independent economist based in Tokyo.

"Domestic demand holds key this year. Beijing's drive to urbanise inner China will boost infrastructure spending while Southeast Asia will also likely see expansion in domestic demand accelerating," he said.

Global stock markets rose on Tuesday as earnings from U.S. companies have generally beaten forecasts so far, with the latest upbeat results from Amazon boosting the company's stock 10 percent, while European equities scaled fresh two-year highs.

Commodity-reliant Australian shares <.axjo> inched up 0.2 percent after hitting a fresh 21-month high as top miners climbed on firmer copper prices.

"Shares are probably the most attractive asset," said Shane Oliver, head of investment strategy at AMP Capital. "Despite the rebound over the last year, Australian shares are offering relatively attractive starting-point dividend yields."

Hong Kong shares <.hsi> jumped 1 percent and Shanghai shares <.ssec> rose 0.3 percent.

Japan's Nikkei stock average <.n225> advanced 1.1 percent. <.t/>

FED STATEMENT EYED

The Fed ends a two-day policy meeting on Wednesday, and few market watchers expect any near-term shift in its current, very accommodative stance.

But investors will focus on the statement for any clues to the Fed's thinking on if and when it might pull back from its aggressive easing stimulus. The minutes from the December meeting, released earlier this month, hinted at uneasiness within the Fed around its asset-buying program and sparked a sell-off in Treasuries and lifted yields up out of ranges.

"We see a prospect for sustained asset-price reflation in coming months, the result of G3 stimulus efforts and structural reallocation flows," said Morgan Stanley said in a research note.

"This has three implications: Reflation would lend support to higher-yielding emerging markets assets, safe-haven assets would continue to weaken, and expectations about emerging markets policy would likely shift."

The yen remained under pressure with the Bank of Japan set to pursue strong monetary easing as the Abe administration pushes for radical reflationary policies to end stubborn deflation.

The dollar rose 0.3 percent to 90.98 yen, near Monday's 91.32, its highest level since June 2010. The euro also gained 0.3 percent to 122.78 yen, not far from 122.91 also touched on Monday, its highest point since April.

The prospect of continued weakness in the yen and rising risk appetite lifted the Australian to four-year highs on the yen on Wednesday, while New Zealand dollars hovered near its highest against the yen in four years.

Aussie rose as high as 95.29 yen while Kiwi rose as high 76.26 yen, close to 76.37 set Friday, its strongest since 2008.

The euro traded at $1.3493, after scaling a 14-month high of $1.3498 on Tuesday.

Spot gold was nearly flat at $1,664.11 an ounce, above the key 200-day moving average at $1,662.92.

(Additional reporting by Miranda Maxwell in Melbourne; Editing by Eric Meijer & Kim Coghill)

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Asian shares rise, cautious before Fed, U.S. data

TOKYO (Reuters) - Asian shares rose on Tuesday as recent selling drew bargain hunters, but investors were cautious ahead of more U.S. economic reports and a Federal Reserve policy decision later in the week that may offer clues to the Fed's stimulus plans.

The MSCI's broadest index of Asia-Pacific shares outside Japan <.miapj0000pus> advanced 0.7 percent to snap a four-day losing streak, led by a 1.1 percent jump in Australian shares <.axjo> to a fresh 21-month high on gains in financials shares.

South Korean shares <.ks11>, which slumped to an 8-week low on Monday, rebounded 0.8 percent.

Japan's Nikkei stock average <.n225> reversed earlier declines and rose 0.6 percent, buoyed by optimism over earnings of major banks. It briefly touched a fresh 32-month high above 11,000 on Monday. <.t/>

The benchmark Standard & Poor's 500 Index <.spx> eased slightly on Monday after an eight-day winning run but held above 1,500 points, after closing above that level on Friday for the first time in more than five years.

Risk appetite has been improving overall with U.S. earnings generally solid. A rise in a gauge of planned U.S. business spending in December added to a recent run of positive global economic data, along with signs of easing financial stress in the euro zone. Euro zone blue chips touched fresh 18-month peaks on Monday.

More solid U.S. growth indicators would, however, fuel speculation the Fed may consider pulling back on aggressive easing stimulus. The Fed ends a two-day policy meeting on Wednesday. The first estimate of U.S. fourth-quarter gross domestic product also will be released on Wednesday, followed by non-farm payrolls on Friday.

"Ahead of key events, markets are likely to stay in ranges. But with yields on U.S. Treasury and German government bonds inching higher, one might say investors may be shifting funds to riskier assets from safe-havens," said Yuji Saito, director of foreign exchange at Credit Agricole in Tokyo.

"That's part of the reason why the euro has stayed firm," he said.

Saito said while a rise in U.S. yields underpins the dollar against the yen, they were likely to be capped with end-month selling from exporters and options lined up between 90.50 and 91.50 yen.

The benchmark U.S. 10-year note yield briefly pierced 2 percent on Monday for the first time since last April, and inched up 1 basis point (bps) in Asia from New York close. The 10-year Japanese government bond yield also rose.

Naka Matsuzawa, fixed income strategist at Nomura Securities, said in a research that 5-year Treasuries have sold off about 10 bps over the last two days and breached 0.80 percent that has served as a support since April 2012, a sell-off which "would not have occurred unless expectations of an economic recovery have gained ground to the extent that the monetary policy outlook begins to change."

"The market is aware that risks are toward more hawkish FOMC statements in the future rather than dovish ones," considering a pick-up in the U.S. economic recovery and stock market rally, as well as the underlying global risk-on trend, he said.

YEN SELLING PAUSES

Yen selling paused, helping to bolster the benchmark South Korean stock index which is vulnerable to exchange rate swings as exporters lead market capitalization.

The dollar fell 0.1 percent to 90.78 yen after touching 91.32 on Monday, its highest level since June 2010, while the euro recouped earlier losses against the yen to steady around 122.14 yen after hitting 122.91 on Monday, its highest point since April.

The euro steadied against the dollar at $1.3456.

The pound fell to $1.5687 GBP=D4, near its lowest since August, in part because of comments from incoming Bank of England Governor Mark Carney that there was still scope for monetary policy to do more in the developed world.

"The prospect of more activist monetary policy is not exactly an encouraging one for GBP, certainly not as it comes on top of a host of other negative developments - an economy that is triple-dipping, a government that is struggling to cut its deficit, and soul-searching about the UK's role within the EU," wrote analysts at JPMorgan in a note.

But a more positive global growth outlook underpinned commodities.

U.S. crude rose 0.2 percent to $96.67 a barrel and Brent inched up 0.1 percent to $113.54.

London copper gained 0.2 percent to $8,065.50 a tonne.

Gold inched up 0.3 percent to $1,659.66 an ounce but was capped by receding investor appetite for safe-haven assets.

(Editing by Eric Meijer & Kim Coghill)

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Seoul pulls Asian shares down, solid economic data helps

TOKYO (Reuters) - Tech-heavy South Korean shares dragged down the broader Asian share index on Monday on fears of weaker earnings, but improving economic prospects in Europe and solid U.S. profit reports underpinned sentiment.

The MSCI's broadest index of Asia-Pacific shares outside Japan <.miapj0000pus> inched down 0.2 percent, after seeing its biggest weekly loss in two months last week. Asian markets were in positive territory except in Seoul and Jakarta.

The Korea Composite Stock Price Index (KOSPI) <.ks11> extended losses to an 8-week low with a 0.6 percent slip, as a weakening yen soured the outlook for local exporters and foreign investors reduced their holdings.

Tech-heavy South Korea was also vulnerable to a clouding outlook for high-end smartphone device shipments.

"Investors have begun preempting concerns about exporters' outlooks since automakers announced weak earnings last week, while large-caps continue to be pressured by foreign selloffs," said Kim Hyung-ryol, an analyst at Kyobo Securities.

Global investor sentiment improved on Friday when the German Ifo business morale index improved in January to its highest in more than half a year, further evidence that Europe's largest economy is gathering speed again, and European banks were set to repay the European Central Bank a larger sum of money than expected to underscore stabilising financial system in the euro zone.

In China, data on Sunday showed profits earned by industrial companies rose 17.3 percent in December from a year earlier to 895.2 billion yuan ($143.9 billion), adding to evidence of a fourth-quarter economic recovery.

The yen extended losses to fresh lows, but Japanese equities gave up earlier gains and eased ahead of Japan's corporate reporting season which enters full swing this week.

Japan's Nikkei stock average <.n225> edged down 0.1 percent after jumping 2.9 percent on Friday to log an 11th straight week of gains, its longest such run since 1971. <.t/>

Against the yen, the dollar hit 91.26 early on Monday, its highest level since June 2010 while the euro touched 122.91, its highest point since April.

New Prime Minister Shinzo Abe has called for aggressive monetary easing and huge fiscal spending to beat deflation. The yen has fallen some 13 percent since mid-November when he began making those calls as part of his election campaign.

"The potent mix of Abenomics and strong risk appetite abroad is continuing to soften the yen, which means investors will still be buying stocks," said Masayuki Doshida, senior market analyst at Rakuten Securities.

In sharp contrast to U.S. and German equities, the Nikkei remains well below levels before the financial crisis in 2008, reflecting the magnitude of negative effect from the yen's strength. The benchmark Standard & Poor's 500 Index <.spx> closed at their highest in more than five years on solid U.S. corporate earnings on Friday and Frankfurt's DAX index <.gdaxi> also scaled five-year highs.

The yen is still stronger than around 95 yen before the 2008 financial crisis, but both the euro and the dollar measured against a basket of key currencies <.dxy> hover at levels far below the pre-crisis levels.

SAFE HAVEN SUFFERS

The improving global macroeconomic environment has curbed interest in safe haven assets such as gold.

Spot gold steadied around $1,659.90 (1,053.44 pounds) an ounce on Monday, still below its 200-day moving average. As riskier equities rallied on Friday, bullion saw its biggest weekly drop this year on Friday.

U.S. crude inched up 0.1 percent to $95.95 a barrel and Brent steadied around $113.23.

London copper, another industrial commodity linked to demand prospects, rose 0.4 percent to $8,065 a tonne.

With easing stress in financial markets, investors pumped $5.65 billion into stock funds worldwide in the latest week, with most of it flowing into emerging market stock funds, data from EPFR Global showed on Friday.

The euro hovered near an 11-month high of $1.3480 hit on Friday. The Australian dollar stumbled to an eight-month low against the euro early on Monday. European shares scaled fresh multi-month peaks on Friday.

Investors will focus this week on the Federal Reserve's Open Market Committee statement on Wednesday and U.S. nonfarm payrolls due on Friday.

Sluggish equities weighed on Asian credit markets, widening the spread on the iTraxx Asia ex-Japan investment-grade index by 1 basis point.

(Additional reporting by Joyce Lee in Seoul and Sophie Knight in Tokyo; Editing by Edwina Gibbs & Kim Coghill)

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Wall Street Week Ahead: Bears hibernate as stocks near record highs

NEW YORK (Reuters) - Stocks have been on a tear in January, moving major indexes within striking distance of all-time highs. The bearish case is a difficult one to make right now.

Earnings have exceeded expectations, the housing and labor markets have strengthened, lawmakers in Washington no longer seem to be the roadblock that they were for most of 2012, and money has returned to stock funds again.

The Standard & Poor's 500 Index <.spx> has gained 5.4 percent this year and closed above 1,500 - climbing to the spot where Wall Street strategists expected it to be by mid-year. The Dow Jones industrial average <.dji> is 2.2 percent away from all-time highs reached in October 2007. The Dow ended Friday's session at 13,895.98, its highest close since October 31, 2007.

The S&P has risen for four straight weeks and eight consecutive sessions, the longest streak of days since 2004. On Friday, the benchmark S&P 500 ended at 1,502.96 - its first close above 1,500 in more than five years.

"Once we break above a resistance level at 1,510, we dramatically increase the probability that we break the highs of 2007," said Walter Zimmermann, technical analyst at United-ICAP, in Jersey City, New Jersey. "That may be the start of a rise that could take equities near 1,800 within the next few years."

The most recent Reuters poll of Wall Street strategists estimated the benchmark index would rise to 1,550 by year-end, a target that is 3.1 percent away from current levels. That would put the S&P 500 a stone's throw from the index's all-time intraday high of 1,576.09 reached on October 11, 2007.

The new year has brought a sharp increase in flows into U.S. equity mutual funds, and that has helped stocks rack up four straight weeks of gains, with strength in big- and small-caps alike.

That's not to say there aren't concerns. Economic growth has been steady, but not as strong as many had hoped. The household unemployment rate remains high at 7.8 percent. And more than 75 percent of the stocks in the S&P 500 are above their 26-week highs, suggesting the buying has come too far, too fast.

MUTUAL FUND INVESTORS COME BACK

All 10 S&P 500 industry sectors are higher in 2013, in part because of new money flowing into equity funds. Investors in U.S.-based funds committed $3.66 billion to stock mutual funds in the latest week, the third straight week of big gains for the funds, data from Thomson Reuters' Lipper service showed on Thursday.

Energy shares <.5sp10> lead the way with a gain of 6.6 percent, followed by industrials <.5sp20>, up 6.3 percent. Telecom <.5sp50>, a defensive play that underperforms in periods of growth, is the weakest sector - up 0.1 percent for the year.

More than 350 stocks hit new highs on Friday alone on the New York Stock Exchange. The Dow Jones Transportation Average <.djt> recently climbed to an all-time high, with stocks in this sector and other economic bellwethers posting strong gains almost daily.

"If you peel back the onion a little bit, you start to look at companies like Precision Castparts , Honeywell , 3M Co and Illinois Tool Works - these are big, broad-based industrial companies in the U.S. and they are all hitting new highs, and doing very well. That is the real story," said Mike Binger, portfolio manager at Gradient Investments, in Shoreview, Minnesota.

The gains have run across asset sizes as well. The S&P small-cap index <.spcy> has jumped 6.7 percent and the S&P mid-cap index <.mid> has shot up 7.5 percent so far this year.

Exchange-traded funds have seen year-to-date inflows of $15.6 billion, with fairly even flows across the small-, mid- and large-cap categories, according to Nicholas Colas, chief market strategist at the ConvergEx Group, in New York.

"Investors aren't really differentiating among asset sizes. They just want broad equity exposure," Colas said.

The market has shown resilience to weak news. On Thursday, the S&P 500 held steady despite a 12 percent slide in shares of Apple after the iPhone and iPad maker's results. The tech giant is heavily weighted in both the S&P 500 and Nasdaq 100 <.ndx> and in the past, its drop has suffocated stocks' broader gains.

JOBS DATA MAY TEST THE RALLY

In the last few days, the ratio of stocks hitting new highs versus those hitting new lows on a daily basis has started to diminish - a potential sign that the rally is narrowing to fewer names - and could be running out of gas.

Investors have also cited sentiment surveys that indicate high levels of bullishness among newsletter writers, a contrarian indicator, and momentum indicators are starting to also suggest the rally has perhaps come too far.

The market's resilience could be tested next week with Friday's release of the January non-farm payrolls report. About 155,000 jobs are seen being added in the month and the unemployment rate is expected to hold steady at 7.8 percent.

"Staying over 1,500 sends up a flag of profit taking," said Jerry Harris, president of asset management at Sterne Agee, in Birmingham, Alabama. "Since recent jobless claims have made us optimistic on payrolls, if that doesn't come through, it will be a real risk to the rally."

A number of marquee names will report earnings next week, including bellwether companies such as Caterpillar Inc , Amazon.com Inc , Ford Motor Co and Pfizer Inc .

On a historic basis, valuations remain relatively low - the S&P 500's current price-to-earnings ratio sits at 15.66, which is just a tad above the historic level of 15.

Worries about the U.S. stock market's recent strength do not mean the market is in a bubble. Investors clearly don't feel that way at the moment.

"We're seeing more interest in equities overall, and a lot of flows from bonds into stocks," said Paul Zemsky, who helps oversee $445 billion as the New York-based head of asset allocation at ING Investment Management. "We've been increasing our exposure to risky assets."

For the week, the Dow climbed 1.8 percent, the S&P 500 rose 1.1 percent and the Nasdaq advanced 0.5 percent.

(Reporting by Ryan Vlastelica; Additional reporting by Chuck Mikolajczak; Editing by Jan Paschal)

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Wall Street Week Ahead: Bears hibernate as stocks near record highs

NEW YORK (Reuters) - Stocks have been on a tear in January, moving major indexes within striking distance of all-time highs. The bearish case is a difficult one to make right now.

Earnings have exceeded expectations, the housing and labor markets have strengthened, lawmakers in Washington no longer seem to be the roadblock that they were for most of 2012, and money has returned to stock funds again.

The Standard & Poor's 500 Index <.spx> has gained 5.4 percent this year and closed above 1,500 - climbing to the spot where Wall Street strategists expected it to be by mid-year. The Dow Jones industrial average <.dji> is 2.2 percent away from all-time highs reached in October 2007. The Dow ended Friday's session at 13,895.98, its highest close since October 31, 2007.

The S&P has risen for four straight weeks and eight consecutive sessions, the longest streak of days since 2004. On Friday, the benchmark S&P 500 ended at 1,502.96 - its first close above 1,500 in more than five years.

"Once we break above a resistance level at 1,510, we dramatically increase the probability that we break the highs of 2007," said Walter Zimmermann, technical analyst at United-ICAP, in Jersey City, New Jersey. "That may be the start of a rise that could take equities near 1,800 within the next few years."

The most recent Reuters poll of Wall Street strategists estimated the benchmark index would rise to 1,550 by year-end, a target that is 3.1 percent away from current levels. That would put the S&P 500 a stone's throw from the index's all-time intraday high of 1,576.09 reached on October 11, 2007.

The new year has brought a sharp increase in flows into U.S. equity mutual funds, and that has helped stocks rack up four straight weeks of gains, with strength in big- and small-caps alike.

That's not to say there aren't concerns. Economic growth has been steady, but not as strong as many had hoped. The household unemployment rate remains high at 7.8 percent. And more than 75 percent of the stocks in the S&P 500 are above their 26-week highs, suggesting the buying has come too far, too fast.

MUTUAL FUND INVESTORS COME BACK

All 10 S&P 500 industry sectors are higher in 2013, in part because of new money flowing into equity funds. Investors in U.S.-based funds committed $3.66 billion to stock mutual funds in the latest week, the third straight week of big gains for the funds, data from Thomson Reuters' Lipper service showed on Thursday.

Energy shares <.5sp10> lead the way with a gain of 6.6 percent, followed by industrials <.5sp20>, up 6.3 percent. Telecom <.5sp50>, a defensive play that underperforms in periods of growth, is the weakest sector - up 0.1 percent for the year.

More than 350 stocks hit new highs on Friday alone on the New York Stock Exchange. The Dow Jones Transportation Average <.djt> recently climbed to an all-time high, with stocks in this sector and other economic bellwethers posting strong gains almost daily.

"If you peel back the onion a little bit, you start to look at companies like Precision Castparts , Honeywell , 3M Co and Illinois Tool Works - these are big, broad-based industrial companies in the U.S. and they are all hitting new highs, and doing very well. That is the real story," said Mike Binger, portfolio manager at Gradient Investments, in Shoreview, Minnesota.

The gains have run across asset sizes as well. The S&P small-cap index <.spcy> has jumped 6.7 percent and the S&P mid-cap index <.mid> has shot up 7.5 percent so far this year.

Exchange-traded funds have seen year-to-date inflows of $15.6 billion, with fairly even flows across the small-, mid- and large-cap categories, according to Nicholas Colas, chief market strategist at the ConvergEx Group, in New York.

"Investors aren't really differentiating among asset sizes. They just want broad equity exposure," Colas said.

The market has shown resilience to weak news. On Thursday, the S&P 500 held steady despite a 12 percent slide in shares of Apple after the iPhone and iPad maker's results. The tech giant is heavily weighted in both the S&P 500 and Nasdaq 100 <.ndx> and in the past, its drop has suffocated stocks' broader gains.

JOBS DATA MAY TEST THE RALLY

In the last few days, the ratio of stocks hitting new highs versus those hitting new lows on a daily basis has started to diminish - a potential sign that the rally is narrowing to fewer names - and could be running out of gas.

Investors have also cited sentiment surveys that indicate high levels of bullishness among newsletter writers, a contrarian indicator, and momentum indicators are starting to also suggest the rally has perhaps come too far.

The market's resilience could be tested next week with Friday's release of the January non-farm payrolls report. About 155,000 jobs are seen being added in the month and the unemployment rate is expected to hold steady at 7.8 percent.

"Staying over 1,500 sends up a flag of profit taking," said Jerry Harris, president of asset management at Sterne Agee, in Birmingham, Alabama. "Since recent jobless claims have made us optimistic on payrolls, if that doesn't come through, it will be a real risk to the rally."

A number of marquee names will report earnings next week, including bellwether companies such as Caterpillar Inc , Amazon.com Inc , Ford Motor Co and Pfizer Inc .

On a historic basis, valuations remain relatively low - the S&P 500's current price-to-earnings ratio sits at 15.66, which is just a tad above the historic level of 15.

Worries about the U.S. stock market's recent strength do not mean the market is in a bubble. Investors clearly don't feel that way at the moment.

"We're seeing more interest in equities overall, and a lot of flows from bonds into stocks," said Paul Zemsky, who helps oversee $445 billion as the New York-based head of asset allocation at ING Investment Management. "We've been increasing our exposure to risky assets."

For the week, the Dow climbed 1.8 percent, the S&P 500 rose 1.1 percent and the Nasdaq advanced 0.5 percent.

(Reporting by Ryan Vlastelica; Additional reporting by Chuck Mikolajczak; Editing by Jan Paschal)

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Asian shares down; Seoul hit by weak techs but Nikkei surges

TOKYO (Reuters) - Asian shares fell on Friday, hurt by a drop in regional technology stocks, although gains in Australia and Japan contained overall losses for equities.

The MSCI's broadest index of Asia-Pacific shares outside Japan <.miapj0000pus> slipped 0.7 percent, led by a 1.7 percent slide in the technology sector <.miapjit00pus>. A sharp fall in tech-heavy markets such as South Korea and Taiwan contributed to the regional retreat.

Seoul shares <.ks11> tumbled 1.3 percent, weighed by weak profits for automakers, while tech shares continued to falter as Samsung Electronics announced cautious spending plans for the first time since the global financial crisis, following rival Apple Inc's below-estimate results announced earlier in the week.

Apple suppliers extended their declines from Thursday, including Taiwan's Largan Precision , while Samsung shares fell 2.8 percent.

A rise in copper and steady gold prices helped push commodity-reliant Australian shares <.axjo> up 0.4 percent to a fresh 21-month high, marking an eighth straight session of gains.

"The U.S. debt ceiling has been pushed out, Japan is stimulating their economy and Europe seems to have digested their debt crisis. There aren't a lot of negatives at the moment," said Lonsec senior client adviser Michael Heffernan in Melbourne.

Japan's Nikkei stock average <.n225> also outperformed its Asian peers with a 2 percent surge as the yen hit fresh lows versus the dollar and the euro on expectations Japan will pursue bold policies to beat deflation and stimulate growth. <.t/>

"Trading on Japan is gaining momentum among foreign investors, centering around the dollar/yen, which has dictated Nikkei's direction," said Tetsuro Ii, the chief executive of Commons Asset Management.

The yen's slide after its brief rebound this week bolstered sentiment for Japanese equities as it lifts earnings prospects for exporters, ahead of the quarterly earnings season set to start next week.

The dollar scaled its highest level since June 2010 to reach 90.695 yen early on Friday and the euro rose to 121.32, its highest since April 2011. Prime Minister Shinzo Abe's new administration has made clear it wants a weaker yen, providing investors a reason to short the currency.

The yen has declined sharply since mid-November on expectations the new government will implement aggressive monetary easing and huge fiscal spending polices to end decades of deflation and return Japan to a sustainable growth path.

More than 80 percent of Japanese firms are in favor of Abe's policy mix, though most also feared Japan would face a debt crisis within a few years, according to a Reuters poll.

"JPY weakness should continue over the coming year driven by an expansion of the Bank of Japan's balance sheet relative to the European Central Bank and the Federal Reserve," said Kit Juckes, FX strategist at Societe Generale in a note. "I don't know how long the USD/JPY is going to pause at around 90, but a move to 100 still seems very likely in the longer run."

Solid data from the United States and Germany after similarly upbeat manufacturing figures from China lifted world equity and commodity markets.

The Standard & Poor's 500 Index <.spx> briefly topped the symbolic 500 mark for the first time since December 2007 while European shares hit their 2013 peak.

U.S. factory activity grew the most in nearly two years in January while a German business survey showed its private sector expanding at its fastest pace in a year this month.

U.S. crude eased 0.2 percent to $95.78 a barrel and Brent inched down 0.2 percent to $113.11.

London copper rose 0.2 percent to $8,109 a metric ton and spot gold steadied around $1,667.64 an ounce.

(Editing by Shri Navaratnam)

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Asian shares recover on improved China PMI

TOKYO (Reuters) - Asian shares edged higher on Thursday after manufacturing data from China confirmed a recovery in the world's second biggest economy was on track, easing nervousness caused by a sharp drop in Apple Inc shares after its earnings report.

China's HSBC flash purchasing managers' index (PMI) rose to 51.9 in January to a two-year high, signaling a rebound in manufacturing activity.

"China has shown signs of recovery recently and the global economic outlook has been improving to give a generally positive direction for markets," said Koichiro Kamei, managing director at financial research firm Market Strategy Institute.

The MSCI's broadest index of Asia-Pacific shares outside Japan <.miapj0000pus> was up 0.1 percent after falling around 0.3 percent earlier, led by its technology sector <.miapjit00pus> which fell about 1 percent in earlier trade. It was recently down 0.5 percent.

Apple, the world's largest technology company, missed Wall Street's revenue forecast for the third straight quarter after iPhone sales came in below expectations, fanning fears that its dominance of the mobile industry was slipping, sending its shares down more than 10 percent in after-hours trading.

Apple's component suppliers such South Korea's LG Display fell, while Taiwan stocks <.twii> were also dragged by Hon Hai and other Apple suppliers.

Shanghai shares <.ssec> extended gains to a 1.5 percent rally from a 0.2 percent rise after the China PMI report. Australian shares <.axjo> built on earlier gains to rise 0.5 percent as the data from China, Australia's largest export market, buoyed sentiment.

South Korean shares <.ks11> nearly wiped earlier losses to trade down 0.1 percent, and the benchmark Nikkei average <.n225> also recouped earlier losses to rise 0.4 percent after falling to a three-week closing low on Tuesday. <.t/>

YEN BUYING HALTED

There was a pause in the two-day yen buying spree, which was driven by the Bank of Japan's latest policy easing steps on Tuesday failing to provide immediate stimulus as expected by some investors. The BOJ pledged to achieve a 2 percent inflation target and promised to start open-ended asset buying from 2014.

The dollar rose 0.4 percent to 88.91 yen while the euro also edged up 0.3 percent to 118.43 yen. The yen is still down 12 percent from its mid-November levels, when markets began pricing in strong monetary accommodation from the BOJ.

Many market players believe the yen's weakness will persist due to widespread expectations the BOJ will continue pursuing aggressive monetary easing policies to beat the country's stubborn deflation.

"The BOJ decision probably isn't a big deal in a sense that the new BOJ regime after (Governor Masaaki) Shirakawa is expected to do everything and anything available, so after profit taking, it's a good opportunity to re-enter the 'Abe trade' because it's all about expectations," said Shogo Fujita, chief Japanese bond strategist at Bank of America in Tokyo.

The "Abe trade" refers to investors betting on a weakening yen and rising Japanese equities on perception Prime Minister Shinzo Abe will pursue aggressive fiscal and monetary policies to pull Japan out of deflation and economic stagnation.

Data on Thursday confirming a deteriorating Japanese trade balance also encouraged yen selling, traders said. Japan logged a record annual trade deficit in 2012.

Earlier on Thursday, South Korea said its economy grew 0.4 percent in the fourth quarter of 2012 on a quarterly basis. But it fell short of around 0.8 percent growth that the Bank of Korea had projected as recently as in October, underscoring a delayed global recovery due to persistent uncertainties hobbling the major economies.

The International Monetary Fund said on Wednesday an unexpectedly stubborn euro zone recession and weakness in Japan will weigh on global economic growth this year before a rebound in 2014.

Asian economies will see weaker growth this year than was expected just three months ago, despite expected policy easing by central banks as inflation pressures taper off, a Reuters poll showed on Wednesday.

U.S. crude was up 0.2 percent at $95.45 a barrel while Brent fell 0.3 percent to $112.46.

London copper was down 0.1 percent at $8.095 a tonne and spot gold inched down 0.1 percent to $1,683.31 an ounce, slipping from a recent one-month high.

(Editing by Shri Navaratnam)

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Asian shares inch higher on improving global confidence

TOKYO (Reuters) - Asian shares edged higher on Wednesday as investor appetite for riskier assets improved amid upbeat U.S. earnings and better German investor confidence.

The yen stabilized after firming as realization sank in that monetary easing announced on Tuesday by the Bank of Japan had fallen short of some market expectations, though many analysts acknowledged that the BOJ was showing determination to pull Japan out of years of deflation and economic stagnation.

Copper and gold were underpinned as the BOJ's move was seen supporting a global economic recovery while its 2 percent inflation target boosted bullion's appeal as a hedge against rising prices.

The MSCI's broadest index of Asia-Pacific shares outside Japan <.miapj0000pus> was up 0.1 percent, hovering near Tuesday's 17-1/2-month high, after recent positive data from the United States and China improved investor sentiment.

Australian shares <.axjo> rose 0.3 percent, touching a 20-month high for a second day in a row as top miner BHP Billiton gained after lifting iron ore production.

Japan's benchmark Nikkei average <.n225> fell 0.8 percent as the firmer yen weighed on exporters. The yen has weakened by around 12 percent since mid-November against the dollar, and boosted Nikkei by more than 20 percent as a weaker yen improved exporters' earnings outlook. <.t/>

"Some investors have been waiting for the timing to take profits, as they have chased the market higher," said Hiroichi Nishi, assistant general manager at SMBC Nikko Securities.

The BOJ on Tuesday doubled its inflation target to 2 percent and adopted an open-ended commitment to buy assets starting 2014, sparking an unwinding of yen short positions from speculators looking for more immediate easing step.

The dollar steadied around 88.70 yen while the euro eased 0.1 percent to 118.11 yen. The dollar hit a 2-1/2-year high of 90.25 yen on Monday.

Technically, many believe the yen will resume its recent downtrend, seeing the latest rebound in the Japanese currency as a correction to its rapid and sharp decline.

Tuesday's pullback on dollar/yen has once again held slightly above the 23.6 percent of the rally from 81.69 to 90.25 yen seen on Monday, which comes in at 88.25 yen, some analysts note. They say the dollar's inability to break below minimum retracement levels since the rally from a December 4 low around 81.70 highlights the strength of the dollar/yen's upward move.

With BOJ joining the continued push by global central banks to support growth, Morgan Stanley said in a research note that policy easing by central banks was positive for emerging markets with more bond portfolio inflows increasingly towards local markets.

"Our key themes for 2013 are rebalancing and reflation, with both prevalent so far this year. Even given a migration towards global equities and away from fixed income, emerging market fixed income remains well-placed," it said.

On Tuesday, hopes of an improvement in the global economy led the Standard & Poor's 500 Index <.spx> to a five-year high.

International Business Machines , the world's largest technology services company reported fourth-quarter earnings and revenue that beat estimates, while revenue from Google Inc's core Internet business outpaced many analysts' expectations for the same quarter. Apple Inc's earnings release was due later on Wednesday.

Investors were also cheered by easing worries over the U.S. budget crisis and the euro zone's debt financing.

Republican leaders in the House of Representatives said they aim to pass on Wednesday a nearly four-month extension of the U.S. debt limit to May 19.

German ZEW investor sentiment rose to its highest level in more than 2-1/2 years in January while Spain has raised around 14 percent of its 2013 funding target.

U.S. crude was down 0.1 percent to $96.62 a barrel and Brent also eased 0.1 percent to $112.34.

Spot gold was at $1,692.66 an ounce, near Tuesday's one-month high of $1,695.76, while London copper traded down 0.3 percent at $8,107 a metric ton but clinging near a one-week high of $$8,144.50 hit on Tuesday.

(Additional reporting by Reuters FX analyst Krishna Kumar in Sydney, Miranda Maxwell in Melbourne and Ayai Tomisawa in Tokyo; Editing by Shri Navaratnam)

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BOJ easing spurs volatile yen, Nikkei trading; Asian shares up

TOKYO (Reuters) - The yen and Japanese equities were volatile on Tuesday after the Bank of Japan took bold easing measures, while other Asian stock markets posted modest gains.

The BOJ on Tuesday doubled its inflation target to 2 percent and adopted an open-ended commitment to buy assets, surprising markets that had expected another incremental increase in its 101 trillion yen asset-buying and lending program.

"It was more or less within market expectations and was not disappointing. But it also didn't top expectations because there was speculation that the BOJ would do all it can, including removing the 0.1 percent floor on short term interest rates," said Hiroshi Maeba, head of FX trading Japan at UBS in Tokyo.

"Initial market reaction shows there are still players who want to short the yen, and the BOJ's decision today clears the way for further dollar/yen buying. I think the dollar may hit 95 yen by March," he said, adding that for now, the dollar/yen was likely to trade in ranges.

Japan's benchmark Nikkei average <.n225> surged as much as 0.8 percent before trimming all gains to fall 0.6 percent. Tokyo shares have been rising in tandem with the yen's slide against major currencies on expectations for bolder BOJ steps. The Nikkei tumbled 1.5 percent on Monday after investors booked profits from the index's 2.9 percent rally on Friday. <.t/>

The dollar rose as high as 90.18 yen, but was last trading down 0.5 percent at 89.18 yen. It touched a fresh 2-1/2-year high of 90.25 on Monday. The euro rose to 120.18, but recently down 0.5 percent at 118.94 yen. The euro hit its peak since May 2011 of 120.73 on Friday.

There has been a perception in markets that even if investors rooting for much bolder BOJ steps cut their yen short positions in disappointment over the ultimate outcome, the yen's rebound was likely to be limited relative to its 13 percent decline against the dollar and a 20 percent drop versus the euro over the past two months. Such views were fed by expectations the BOJ will continue to aggressively ease monetary policy to drive Japan out of years of deflation and support the economy.

The MSCI's broadest index of Asia-Pacific shares outside Japan <.miapj0000pus> was up 0.2 percent. The index was pulled down on Monday after briefly touching 17-1/2-month highs as Malaysian stocks suffered their biggest drop in 16 months on election risks.

POSITIVE FACTORS EMERGE

Overall market sentiment was likely to remain supported by signs of a compromise to avert a U.S. fiscal crisis and hopes for a recovery in global growth following last week's positive data from the world's top two economies, the United States and China.

European shares rose on Monday near two-year highs, with investors betting on an improving economy in Europe. Wall Street was closed for Martin Luther King Jr. Day.

Republican leaders in the U.S. House of Representatives have scheduled a vote on Wednesday on a nearly four-month extension of U.S. borrowing capacity, aimed at avoiding a fight over the looming federal debt ceiling and shifting their negotiating leverage for spending cuts to other fiscal deadlines.

London copper climbed 0.7 percent to $8,115 a ton on growing confidence in the strength of China's economic recovery ahead of an early gauge of manufacturing activity this week, while BOJ easing has also stoked investor appetite for risk.

U.S. crude futures steadied around $95.59 a barrel while Brent futures edged up 0.3 percent to $112.

Gold was up 0.2 percent to $1,692.60 an ounce on a fresh round of easing from the BOJ.

(Reporting by Chikako Mogi; Editing by Shri Navaratnam)

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