Asian shares fall ahead of U.S. payrolls data, dollar nurses losses

Asian shares fell and Treasuries held on to gains on Friday ahead of U.S. non-farm payrolls data, the next big test for investors looking for more signs of a rates policy shift from the Federal Reserve, while the dollar nursed heavy losses.

The cautious tone in share markets, after the recent big rally, is set to extend to Europe, with the pan-region Euro Stoxx 50 futures FESX1! easing 0.2%, German DAX futures DAX1! down 0.1% and FTSE futures Z1! 0.2% lower.

In Asia, MSCI's broadest index of Asia-Pacific shares outside Japan (.MIAPJ0000PUS) lost 0.7%. Nonetheless, the index was set for a weekly gain of 3.6%, hovering around its highest level since mid-September. Japan's Nikkei NI225 fell 1.7%.

S&P 500 futures ES1! softened 0.2%, while Nasdaq futures NQ1! fell 0.3%. U.S. shares ended mixed on Thursday after a big rally the day before, buoyed by comments from Fed Chair Jerome Powell that did not sound as hawkish as some had feared.

Data overnight including falling U.S. job openings and contracting U.S. manufacturing activity, pointing to signs of easing cost pressure added to evidence that the Fed's rate hikes have cooled the economy.

Investors are also watching for more signs that China is easing its zero-COVID policy, and whether China would contribute more to global growth next year amid a looming global recession.

Chinese blue chips slid 0.5%, as the country grappled with a surge in COVID-19 cases. Hong Kong's Hang Seng index HSI reversed earlier gains to be down 0.7%.

Sources told Reuters that China is set to announce an easing of its COVID quarantine protocols in the coming days and a reduction in mass testing, a marked shift in policy after anger over the world's toughest curbs fuelled widespread protests.

Shane Oliver, chief economist at AMP Capital, said after a strong November markets in some cases are up to around technical resistance levels, and it may take a while to get through those points.

"But I suspect given the increasing signs that inflation is peaking globally and China is easing its COVID restrictions moving away from zero COVID - they haven't said as much but certainly it is moving away from zero COVID - that those things are probably positive," he said.

"I think the rally can probably continue but in the short-term the payrolls are the one to watch closely."

Alan Ruskin, macro strategist at Deutsche Bank, said if the nonfarm payrolls increased by 50,000-150,000 in November, that would be favourable for bonds and equities and keep the U.S. dollar trading lower.

Economists polled by Reuters expect payrolls likely rose 200,000 in November.

Futures have priced in a 78% chance of a rise of 50 basis points at the Fed's December policy meeting, while rates are now expected to peak around 4.75% to 5% by mid next year, compared with 5% to 5.25% previously.

In the bond markets, Treasuries held onto most of their gains after two straight days of rally. The yields on benchmark 10-year Treasury notes US10Y were largely steady at 3.5412%, compared with its U.S. close of 3.527%.

The two-year yield (US2YT=RR), which rises with traders' expectations of higher Fed fund rates, was little changed at 4.2687%, compared with a U.S. close of 4.254%.

The U.S dollar DXY on Friday wallowed at its three-month low against major currencies. It was set for a 1.3% weekly drop.

The Euro EURUSD hit a fresh five-month high at $1.0539 while the Japanese yen USDJPY also scaled a new three-month high against the U.S. dollar.

In the oil market, prices seesawed ahead of a key meeting of producing countries over the weekend.

U.S. crude oil futures CL1! reversed earlier losses to be flat around $81.21 per barrel, after surging to a two-week high of $83.34 in the previous session on a softer dollar.

Brent crude futures BRN1! also rose 0.14% to $87.01 per barrel.

Gold was slightly lower. Spot gold GOLD was traded at $1796.19 per ounce.