Asia stocks, dollar wrestle with US political risk

SYDNEY, Nov 3 (Reuters) - Asia shares eased on Thursday while the U.S. dollar stayed on the defensive as a tightening U.S. presidential race saw the S&P 500 suffer its longest losing streak in five years as investors fled to safer harbours. Sovereign bonds, gold, the yen and Swiss franc were all in favour, and even the prospect of a December rate increase from the Federal Reserve could not save the dollar. Oil prices took a beating of their own after a record weekly build in U.S. crude inventories stoked concerns about a global supply glut. MSCI's broadest index of Asia-Pacific shares outside Japan eased 0.1 percent in early trade, while Australia's market lost 0.5 percent. Tokyo markets were closed for a holiday, which was likely just as well as the Nikkei would have been hard pressed by the rising yen. Narrowing polls have led markets to price in more risk Republican Donald Trump might defeat his Democratic rival Hillary Clinton, perhaps remembering the turmoil that followed the surprise Brexit vote. An average of polls compiled by the RealClearPolitics website showed Clinton just 1.7 percent ahead of Trump nationally on Wednesday, with 47 percent support to his 45.3 percent. But a Reuters/Ipsos daily tracking poll released on the same day showed Clinton ahead by 6 percentage points among likely voters. Investors generally view Clinton as a known quantity, but there is deep uncertainty about what a Trump win might mean for U.S. economic policy, free trade and geopolitics. "We are not quite at the point where we need to think about canned food and underground wood bunkers, but we are being schooled in understanding the dynamics politics plays on financial markets," said Chris Weston, chief market strategist at broker IG Research. "Despite all the thoughts about central bank policy changes, improving inflation trends and ever-changing economics, politics dominates markets above all else." The baleful effect was all too apparent on Wall Street where the Dow ended Wednesday down 0.43 percent. The S&P 500 lost 0.65 percent and the Nasdaq 0.93 percent. Another session of losses for the S&P would match the record for consecutive down days set in 2008. SLOW MOTION FED Politics also overshadowed the Fed's November policy meeting where it kept rates steady as expected and opened the door a little wider to a rate rise next month. "Barring a shock to the global economy and/or upheaval in financial markets, we continue to anticipate a 25 basis point rate hike at the 14 December meeting," said Peter Dragicevich, a senior currency and rates strategist at CBA. "We, and the FOMC, are looking for the tightening cycle to continue to be slow and limited," he added, predicting just two more rate increases over 2017. The prospect of such a glacial tightening did little to aid the U.S. dollar which hit its lowest level in more than three weeks against the euro, yen, Swiss franc and sterling. The euro firmed to $1.1097, while the dollar faded to 103.32 yen. Against a basket of currencies, the dollar index was pinned at 97.365 well down on last week's peak of 99.119. The Mexican peso slid to a more than one-month low at 19.4667 pesos per dollar, on fears a Trump victory would hurt the local economy. In commodity markets, spot gold was firm at $1,298.00 an ounce, having hit its highest since Oct. 4. Oil sank after U.S. crude inventories rose 14.4 million barrels for the week ended Oct. 28, far more than the 1.0 million barrels analysts had expected. West Texas crude bounced 37 cents to $45.72 in early Asian trade, but that followed a near 3 percent drop overnight. Brent had fallen $1.06 to $47.08 on Wednesday.