Asia shares touch three-month top, cautious on Fed

By Wayne Cole

SYDNEY (Reuters) - Asian shares crept to a three-month peak on Tuesday after Wall Street hit all-time highs amid hopes of progress in Sino-U.S. trade talks and for another dose of policy stimulus from the Federal Reserve this week.

Japan's Nikkei (N225) led the way with a rise of 0.4% to reach ground last trod a full year ago, while Shanghai blue chips (CSI300) dithered either side of flat.

MSCI's broadest index of Asia-Pacific shares outside Japan (MIAPJ0000PUS) nudged up 0.2% and touched its highest since late July. E-Mini futures for the S&P 500 (ESc1) extended their gains by 0.1% and EUROSTOXX 50 futures (STXEc1) dipped 0.1%.

U.S. President Donald Trump said on Monday he expected to sign a significant part of a trade deal with China ahead of schedule but did not elaborate on the timing.

The U.S. trade representative also said the U.S. was studying whether to extend tariff suspensions on $34 billion of Chinese goods set to expire on Dec. 28 this year.

"The market appears to be interpreting the improvement in trade talks as a positive sign that the U.S. will suspend its planned tariffs on $160 billion of Chinese imports due to take place in December," said Rodrigo Catril, a senior FX strategist at National Australia Bank.

"This is a big assumption as talks could easily fail again if both parties don't find a compromise."

On Wall Street, the S&P 500 (SPX) gained 0.56% to score a record closing peak, while the Dow (DJI) rose 0.49% and the Nasdaq (IXIC) 1.01%.

Microsoft Corp (O:MSFT) climbed 2.46% after winning the Pentagon's $10 billion cloud computing contract, beating out Amazon.com Inc (O:AMZN).

Google parent Alphabet Inc (O:GOOGL) slipped in late NY trade after missing analysts' estimates for quarterly profit even though revenue growth topped expectations.

WAITING ON THE FED

The embrace of risk left bonds out in the cold, and yields on two-year Treasury notes hit four-week highs at 1.667%.

Bond investors are still looking forward to a likely rate cut from the Federal Reserve on Wednesday, though they also suspect officials might signal caution on moving yet further.

"Our base case is for the Fed to cut again in December, although Fed communication may sound marginally more hawkish this week and we expect the FOMC to keep the door open for another easing this year rather than signal it explicitly," wrote analysts at JPMorgan (NYSE:JPM) in a note.

The futures market has 50 basis points of cuts priced in by June .

Central banks in Japan and Canada also meet this week, with talk the former might ease further if only to prevent an export-sapping bounce in its currency.

The shift from safe harbours was working to weaken the yen. The U.S. dollar was firm at 108.98 yen , having reached its highest in three months, and was eyeing a major top at 109.31.

It fared less well on the euro, which edged up to $1.1095 (EUR=), and was little changed on a basket of currencies at 97.782 (DXY).

Sterling firmed after the European Union agreed to a Brexit delay of up to three months, while Prime Minister Boris Johnson lost a vote to force an election on Dec. 12.

The pound was last at $1.2852 , well above its low for the month at $1.2193.

Spot gold slipped back to $1,491.48 per ounce , and away from last week's top around $1,517.

Oil prices were pressured by signs of rising U.S. crude stock piles.

Brent crude (LCOc1) futures slipped 24 cents to $61.33 a barrel, while U.S. crude (CLc1) lost 24 cents to $55.57.