MUMBAI, India - Asian stock trading was muted Friday after China moved to prevent a new liquidity crunch and markets continued to react to the U.S. Federal Reserve's long-awaited decision to begin to ease off on its easy-money stimulus policy. The dollar strengthened against the Japanese yen, hitting a five-year high, after the country's central bank decided to hold steady on its monetary policy instead of opting for stimulus. Japan's regional heavyweight, the Nikkei index, recovered some early losses near a six-year peak at 15,837.31 as investors welcomed a continued weak yen expected to boost exports. Hong Kong's Hang Seng index was down by 0.7 per cent to 22,729.62 and China's Shanghai composite dropped by 1.6 per cent to 2,192.07 on fresh concerns of a shortage of credit. The People's Bank of China moved late Thursday to inject liquidity after the interbank market showed stress, but concerns over a repeat of the summer's credit crunch weighed on the market. Nomura research analyst Zhiwei Zhang said in note to investors that the Chinese bank's action ``will likely help to prevent a recurrence of the June liquidity squeeze in the short term'' but added that investors, especially commercial banks, are still nervous in the wake of the U.S. Fed's decision to cut back next month on the $85 billion in bonds it has been buying up each month, which has kept interest rates down and injected money into emerging markets as investors sought higher returns. After months of speculation that it was about to embark on so-called ``tapering,'' the Fed finally began to end its latest asset-purchase program. Policymakers decided to cut from January $5 billion each from the Fed's monthly purchases of U.S. Treasuries and mortgage backed securities. It also said it ``will likely reduce the pace of asset purchases in further measured steps at future meetings.'' However, mindful of the impact on markets, the Fed emphasized that its main interest rate would remain low until U.S. unemployment falls below 6.5 per cent. It's now 7 per cent. Markets worldwide mostly reacted in relief to the Fed's decision, especially since it was accompanied by a commitment to low interest rates for a while yet. However, jitters over the impact on emerging economies kept some markets in check. On Friday, the South Korea's Kospi index was up 0.4 per cent to 1,983.35 and Taiwan's Taiex flat at 8,408.53. The Sensex index on the Bombay Stock Exchange was up 0.6 per cent to 20,038.18 as traders expressed relief that India's central bank held off on another interest rate hike, despite high inflation. In the U.S., trading was fairly cautious after a post-Fed advance the day before _ the Dow Jones industrial average was flat on Thursday at 16,168 while the broader S&P 500 index fell 0.1 per cent to 1,808. In Europe , the FTSE 100 index of leading British shares closed up 1.4 per cent at 6,584.70 on Thursday while Germany's DAX rose 1.7 per cent to 9,335.74. The CAC-40 in France ended 1.6 per cent higher at 4,177.03. In the currency markets, the dollar continued to strengthen against the yen in the wake of the Fed decision, climbing by 0.1 per cent to hit a fresh five-year high of 104.43 on Friday. Against the euro, the dollar was flat at $1.3660 . Pan Pylas in London contributed to this story. ( The Associated Press )
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