Asian shares tumble to 7-week lows rattled by US election uncertainty (Update)

The heated U.S. presidential campaign, which for months has grabbed the bulk of U.S. news headlines, enters its final stretch next week before the Nov. 8 vote, and the race between Democrat Hillary Clinton(left) and Republican Donald Trump of late has provided market-moving surprises

Earlier report

TOKYO: Asian shares stumbled and the U.S. dollar on was on the defensive on Wednesday as signs that Republican U.S. presidential candidate Donald Trump could be closing the gap with his Democratic rival Hillary Clinton spooked investors.

Anxiety in markets has deepened over a possible Trump victory given uncertainty on the Republican candidate's stance on several issues including foreign policy, trade relations and immigrants, while Clinton is viewed as a candidate of the status quo.

MSCI's broadest index of Asia-Pacific shares outside Japan dropped 0.4 percent while Japan's Nikkei fell 1.1 percent.

The tumultuous presidential race appeared to tighten after news that the Federal Bureau of Investigation was reviewing more emails as part of a probe into Clinton's use of a private email server.

While Clinton held a five-percentage-point lead over Republican Donald Trump, according to a Reuters/Ipsos opinion poll released on Monday, some other polls showed Trump ahead by 1-2 percentage points.

That pushed U.S. S&P 500 Index <.SPX> down to a four-month closing low on Tuesday. The CBOE volatility index <.VIX>, often seen as investors' fear gauge, briefly rose to a two-month high above 20 percent.

In the currency market, traders sold the dollar partly as they suspect Trump would prefer a weaker dollar given his protectionist stance on international trade.

The euro rose to a three-week high of $1.1069, up about two percent from its 7 1/2-month low of $1.0851 hit just over a week ago. Against the yen, the dollar slipped to 104.03 yen from three-month high of 105.54 yen set on Friday.

"If you had a long dollar position on the view that the dollar would gain because Clinton would win, you would surely close that position because her victory is less certain," said Koichi Yoshikawa, executive director of financial markets at Standard Chartered Bank.

"And people were buying back the euro because that is the currency that had been being shorted the most against the dollar," he added.

Other safe-haven assets were also favored, with the Swiss franc rising to 1.0782 franc per euro , its highest level since late June. Gold hit a four-week high of $1,291.6 per ounce on Tuesday and last stood at $1,288.5.

In contrast, the Mexican peso , seen as the most vulnerable to a Trump presidency due to his proposal such as building a wall along the U.S. border with Mexico, posted its biggest fall in two months.

The peso slid to 19.265 to the dollar, its lowest level since early October.

The tense back drop in markets came as the Federal Reserve holds its two-day policy meeting, with its statement due later on Wednesday.

While traders do not expect the central bank to raise interest rates just a week ahead of the presidential election, they are looking for signs the Fed is set to hike rates in December.

U.S. interest rate futures <0#FF:> are pricing in about 70 percent chance of a rate hike in December but virtually no likelihood of a hike on Wednesday.

Oil prices tumbled to one-month lows as a trade group's report of larger-than-expected U.S. crude inventory added to concerns about oversupply from growing doubts over whether oil producing countries can agree on output cut later this month.

Brent crude futures fell to $47.90 per barrel, having hit a low of $47.72 on Tuesday.

Still, even as investors were moving out of riskier assets, copper bucked the trend, rising to a three-month high of $4,922 a tonne.- Reuters