Global shares, euro ease as bank funding doubts persist

Asian shares and the euro eased on Thursday as doubts remained over how much of the funds banks raised from an inaugural long-term European Central Bank tender will actually flow into 

struggling euro zone economies and help restore confidence.

MSCI's broadest index of Asia Pacific shares outside Japan fell 0.4%, after climbing to a one-week high on Wednesday, while Tokyo's Nikkei stock average opened down 0.36%.

The euro inched down 0.05% to USD 1.3037, with traders seeing major support around USD 1.3000, the December 14 low, above 2011's trough of USD 1.2860. The euro reached a one-week high near USD 1.32 before giving up gains to trade around USD 1.3040 on Wednesday.

Asian credit markets weakened as yields of highly indebted Italy and Spain inched higher despite strong demand at the ECB's long-term funding operation, with spreads on the iTraxx Asia ex-Japan investment grade index widening by about 4 basis points early on Thursday.

"With bank balance sheets under stress and the system still required to raise capital ratios under Basel III, the temptation will surely be for banks to sit on this additional liquidity, rather than recycle it back through the economy," wrote BNP Paribas in a daily note.

At the ECB's first ever three-year lending operation on Wednesday, 523 banks borrowed a record 489 billion euros, well above the 310 billion euro take-up forecast.

The tender eased concerns about an immediate credit crunch, but it does not directly lead to resolving the huge indebtedness of some euro zone countries, which has discouraged investors from lending to euro zone banks because of their large exposure to sovereign debt.

Analysts have said the ECB loans will lower the cost for euro zone banks to borrow euros in the open market, but will not reduce their dollar funding costs, and banks were likely to use the funds to repay their own debts as they strive to get rid of bad assets and improve their balance sheets, rather than lend.

Italy alone faces about 150 billion euros of debt refinancing between April and March.

Italian and Spanish government bond yields rose on Wednesday, snapping an eight-session down trend.

The spread between the Italian and German 10-year government bond yields widened by some 20 basis points to 488 bps on Wednesday from the day before. The spread fell below 500 basis points on Monday.

In a sign dollar funding remained distressed, the London interbank offered rate for three-month dollars rose further to 0.57125% on Wednesday from 0.56975%, the highest since July 2009.

The smooth ECB tender gave investors an excuse to take profits and square positions as volumes get thinner in pre-holiday trading, which has increased volatility.

Global stocks inched up on Wednesday, but weak earnings from Oracle Corp , the world's No. 3 software maker, weighed on the US technology sector and kept Wall Street broadly flat.