By Chikako Mogi
TOKYO (Reuters) - Asian shares slipped on Thursday as weak U.S. retail sales data raised fresh concerns about sluggish economic growth, while an Italian debt auction later in the day will test market confidence in whether Rome can avoid becoming the next victim of the euro zone crisis.
Traders expected market activity to slow approaching a cliffhanger Sunday election in Greece, which could precipitate the country's exit from the euro zone.
European shares were likely to pause, with spreadbetters predicting major European markets <.FTSE> <.FCHI> <.GDAXI> would open flat to 0.1 percent lower. But U.S. stock futures were up 0.4 percent. <.EU> <.L> <.N>
MSCI's broadest index of Asia-Pacific shares outside Japan <.MIAPJ0000PUS> fell 0.5 percent, with China and Australia leading the decline, while Japan's Nikkei average <.N225> trimmed earlier losses to stand down 0.1 percent. <.T>
"I would expect low volume in today's session, with risk aversion dominating the mind-set of investors leading up to the Greek election," said Miguel Audencial, trader at CMC Markets in Sydney, where stocks <.AXJO> fell 0.5 percent.
Data showing that U.S. retail sales hit their worst level in two years in May could justify the Federal Reserve taking further stimulus measures at its policy meeting next week to support the U.S. economy, after a weak May jobs report added to fears about the euro zone and sparked a broad market sell-off earlier this month.
EURO STEADY
The euro firmed 0.1 percent at $1.2580, stuck in a range between recent highs and lows - well above the near two-year low touched on June 1 at $1.2288, but below a three-week high reached on Monday at $1.2672.
The euro's relative stability after Moody's Investors Service slashed Spain's credit rating by three notches to Baa3 on Wednesday was seen as an indication of the extremely bearish stance already taken by investors before the Greek election.
"It tells you much about how bearish market expectations are when a 3 notch downgrade of Spain pushes EUR/USD 15 pips lower," said Sebastian Galy, strategist at Societe General.
U.S. crude erased earlier losses to turn up 0.5 percent at $83.01 a barrel and Brent crude futures also turned positive to rise 0.5 percent at $97.61 a barrel.
Activity was subdued in Asian credit markets, with the spread on the iTraxx Asia ex-Japan investment-grade index, or the cost of insuring against corporate and sovereign defaults in Asia, widening by 1 basis point.
RICH WITH PROBLEMS
Greeks were pulling their cash out of the banks and hoarding food ahead of Sunday. The last published opinion polls showed conservatives who back the 130-billion-euro ($160 billion) bailout that is keeping Greece afloat were neck-and-neck with leftists, who are against the rescue deal but want to keep Greece in the euro zone.
Moody's action magnified worries about Spain's financing problems, which in turn raised speculation that a similarly indebted Italy could be next in line to seek help, prompting technocrat Prime Minister Mario Monti to urge Italy's politicians on Wednesday to back his tough economic medicine.
Investor jitters have kept yields on sovereign debts of both Spain and Italy at elevated levels, with Italy facing a test later on Thursday with its debt sale of up to 4.5 billion euros ($5.66 billion).
The dollar and gold both rose again on Thursday, breaking their inverse relation which had been intact until this month, while gold also climbed in sync with mounting investor risk aversion, suggesting bullion may be regaining its safe-haven status.
Gold had been sold off along with a broad market slide, underscoring the depth of investor jitters, as investors cashed in to cover losses in riskier assets and preferred cash over bullion amid heightening fears over the fate of the euro zone and global growth slowdown.
Such behavior has kept an inverse relationship this year between gold and the CBOE Volatility index <.VIX>, Wall Street's so-call "fear index" that measures expected volatility in the Standard & Poor's 500 index <.SPX> over the next 30 days.
But spot gold added 0.3 percent to $1,622.34 an ounce on Thursday after a 0.5 percent rise the day before, while the VIX advanced 2.18 percent on Wednesday. The dollar index <.DXY> measured against key currencies inched up 0.1 percent on Thursday. ($1 = 0.7953 euros)
(Additional reporting by Vikram Subhedar in Hong Kong and Miranda Maxwell in Melbourne; Editing by Alex Richardson & Kim Coghill)
