Asian shares, euro hit by Spain bank woes, wary on

TOKYO (Reuters) - Asian shares slipped and the euro touched a 23-month low on Wednesday as fears mounted that Spain's banking woes will push its borrowing costs to unsustainable levels while signs emerged that China may take a cautious stance on economic stimulus.

European shares were likely to follow Asian stocks lower, with spreadbetters predicting major European markets would open down as much as 0.7 percent. U.S. stock futures were down 0.5 percent.

MSCI's broadest index of Asia-Pacific shares outside Japan slipped 1.2 percent, led by the energy and materials sectors. The decline knocked the pan-Asian index back toward a five-month low hit last week.

Investors, unsettled by a steady stream of news underscoring the depth of the euro zone's debt crisis, have recently been pinning their hopes on measures that China, the world's second-largest economy, recently unveiled to boost domestic consumption and private investment.

In this vulnerable environment, media reports dampening expectations for a hefty Chinese stimulus programme hit sectors most sensitive to that country's economy, taking a toll on Hong Kong shares, which fell 2 percent. Shanghai shares eased 0.2 percent.

Japan's Nikkei average closed down 0.3 percent.

The euro fell as low as $1.24572 while the Australian dollar, typically seen as a gauge of risk appetite, declined 0.6 percent to the day's low around $0.9775 after weaker-than-expected Australian retail sales data.

The euro's plight continued to underpin the dollar index, measured against a basket of major currencies, which rose above 82.61 on Wednesday to its highest since September 2010 and dragged down dollar-sensitive commodities.

The Reuters/Jefferies CRB Index was down 0.8 percent at 279.74 late on Tuesday, after touching a 20-month low of 279.49.

CAUTIOUS CHINA

Indications that China may take a cautious approach to stimulating its economy as growth weakens also dampened sentiment in the markets.

Several market sources cited a Xinhua report released after markets closed on Tuesday that said China had no plans for stimulus measures this year on the scale of those seen in 2008 and 2009, although analysts warned against interpreting this to mean that China would act too timidly on its economy.

"I don't think we need to be so cynical. Beijing will definitely have to continue to make adjustments, but it won't change its top-line rhetoric," said Hong Hao, Bank of Communications International's chief equity strategist.

Societe Generale analyst Wei Yao added that infrastructure investment would be a key policy tool, while taking the view that there would be a rebound in growth in the second half.

"However, Chinese policymakers will not commit themselves to a predefined sizable investment stimulus plan like in late 2008," he said.

Major U.S. stock indexes and European shares had closed higher on Tuesday, partly on hopes over Greece's future.

Greece's pro-bailout conservatives are leading ahead of a national parliamentary election on June 17 that may determine whether the country remains in the euro zone, an opinion poll showed on Wednesday.

But Spain took centre stage with its plan to issue new bonds in the near future to fund ailing lenders and indebted regions, fuelling fears that the country's refinancing stresses could spin out of control and push borrowing costs above 7 percent, which is seen as unsustainable.

Sovereign debt yields exceeding that level have prompted other troubled euro zone economies to seek a global bailout.

The European Central Bank threw cold water on expectations that it would extend help to ease Spain's funding woes, saying it was not discussing restarting its bond purchases.

But views are emerging that the markets' reaction to risks in Europe has been overdone.

"Concerns in Spain and the negative news from the ECB are putting commodities under pressure, but they shouldn't. I think the markets are a bit ahead in currencies," said Jonathan Barratt, chief executive of BarrattBulletin, a Sydney-based commodity research firm.

"I actually feel there is more good news out there at the moment than negative news, and as a result of that, the dollar index, which is reaching a very important level, should come under pressure. It's time to consolidate, and I look for that."

Investors are also looking for fresh catalysts to provide direction at least for the near term as they await Greece's election and sort out the prospects of Chinese stimilus steps.

One possible catalyst is U.S. May jobs data due on Friday, which will help investors to gauge the strength of the U.S. economic recovery. Employers are expected to have added 150,000 new workers to their payrolls, according to a Reuters survey, after adding 115,000 in April, the fewest in six months.

China's official manufacturing data is also due on Friday.

A weaker euro suppressed gold, pushing it down 0.5 percent to $1,547.31 an ounce.

U.S. crude fell 0.6 percent at $90.20 a barrel, while Brent also fell 0.4 percent at $106.22 a barrel.

Asian credit markets weakened, with the spread on the iTraxx Asia ex-Japan investment-grade index widening by 2 basis points.

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