Greenspan rattles dollar, but Asia shares up

SINGAPORE, Dec 12 (Reuters) The dollar fell against the euro today after former Federal Reserve Chairman Alan Greenspan warned the currency would weaken in the next few years, but Japanese shares rose, buoyed by exporters.

Oil remained soft after tumbling nearly one dollar on Monday and gold bounced off a three-week low, but trade in most markets was cautious before a Federal Reserve policy review later in the day.

The Fed is expected to leave US interest rates unchanged but investors are anxious to learn how worried the central bank is about growth and inflation prospects in the world's largest economy to determine the likely course of future rate moves.

US stocks edged up yesterday as a slew of new deals spurred confidence in valuations and optimism about the economic outlook.

The Dow Jones industrial average added 0.17 per cent, while the tech-laden Nasdaq Composite Index climbed 0.23 per cent.

The euro rose to 1.3253 dollar by late morning in Tokyo from around 1.3235 dollar in late US trade. The dollar slipped to 116.75 yen from 117.00 yen although it has rallied from a four-month low below 115 yen in the past week.

Greenspan, speaking to a business conference in Tel Aviv, said yesterday he saw a weak dollar for the next few years as the United States grapples with a balance of payments deficit.

''I expect that the dollar will continue to drift downwards until there will be a change in the US balance of payments,'' he said.

The US currency has weakened by more than 10 per cent this year against the euro on expectations the United States may begin cutting rates to spur its slowing economy while European policy makers will keep raising rates to quell inflation.

Stock markets in Asia were largely positive, with Japan's Nikkei average rising 0.9 per cent.

Investors bought exporters such as Toyota Motor Corp., buoyed by the dollar's gains on the yen in the past week which have eased concern over exporters' earnings outlooks. Toyota rose nearly 1 per cent.

''Investors have stayed away from exporters, but they are buying Toyota and other stocks on a recent softer yen, in addition to improving market sentiment,'' said Zenshiro Mizuno, senior managing director of Marusan Securities' equity trading division.

Investors were also heartened by a report in the business daily Nihon Keizai that the government is poised to extend tax breaks on capital gains and dividends.

Australian shares hit a record high after world No 2 zinc producer Zinifex Ltd. said it was combining some of its businesses with those of Belgian metals firm Umicore to create the world's largest zinc producer, which the two then plan to spin off. Zinifex climbed as much as 7 per cent.

Hong Kong's benchmark index rose 0.4 per cent in early trade, fuelled by further interest in Chinese telecoms firms, before turning lower.

Singapore's Straits Times climbed 0.6 per cent.

Korea's main index fell 0.6 per cent, shrugging off a weaker won, after flat screen maker LG Philips LCD Co Ltd said it was being investigated by fair trade watchdogs from South Korea and Japan and had received a subpoena from the US Department of Justice over possible antitrust conduct.

LG Philips shares fell as much as 7 per cent to a record low of 24,950 won before paring some losses to stand down on the day 4.4 per cent.

Oil steadied above a barrel after a 2 per cent fall in the previous two sessions due to mild winter weather in the United States. Oil traders are awaiting US inventory data on Wednesday and OPEC's decision on output cuts on Thursday.

Japanese government bonds were little changed ahead of key data later this week that could provide clues on the outlook for interest rates ahead of a Bank of Japan meeting next week.

REUTERS SSC RAI0938