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Asian stock markets : https://tmsnrt.rs/2zpUAr4

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Nikkei bounces, S&P 500 futures edge higher

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China output, retail sales beat forecasts

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Markets brace for BOJ to end negative rates

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Fed seen on hold, but might signal slower rate cuts

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Dollar keeps gains, yen on defensive for now

(Updates prices at 0600 GMT)

By Wayne Cole

SYDNEY, March 18 (Reuters) - Asian shares firmed on

Monday as Chinese data surprised on the upside for once, while

investors looked to navigate a minefield of central bank

meetings this week that could see the end of free money in Japan

and a slower glide path for U.S. rate cuts.

Beijing reported industrial output climbed an annual 7% over

January and February, while retail sales rose 5.5% on a year

earlier. But real estate remained a worry as property investment

fell 9% on the year, underlining the case for further policy

support.

Central banks in the United States, Japan, UK, Switzerland,

Norway, Australia, Indonesia, Taiwan, Turkey, Brazil and Mexico

all meet this week and, while many are expected to hold steady,

there is plenty of scope for surprises.

Tuesday could see the end of an era as the Bank of Japan is

widely tipped to end eight years of negative interest rates and

cease or amend its yield curve control policy.

The Nikkei newspaper on Saturday became just the latest

media outlet to flag the move, after major companies granted the

biggest pay hikes in 33 years.

There is a chance the BOJ might wait for its April meeting

given it will be issuing updated economic forecasts then.

"Whether or not it is March or April, we suspect the

language accompanying any such move will carry a cautious tone,

emphasising it more as a monetary policy adjustment rather than

a tightening at this stage," said Carl Ang, a fixed income

analyst at MFS Investment Management.

"For Japan a measured and gradual path of policy

normalisation appears appropriate for an economy unaccustomed to

higher rates and thus the policy messaging will be critical."

Markets also assume the BOJ will hike at a snail's pace and

have a rate of 0.27% priced in by December, compared with the

current -0.1%.

The central bank on Monday said it would conduct an

unscheduled operation to buy bonds, presumably to head off any

significant rise in yields and avoid market volatility.

That might be one reason the yen actually lost ground last

week, with the dollar up at 149.10 yen. The euro stood

at $1.0887, having eased 0.5% last week and away from

a top of $1.0963.

Japan's Nikkei bounced more than 2%, having shed

2.4% last week as a run up to record highs drew some profit

taking.

MSCI's broadest index of Asia-Pacific shares outside Japan

gained 0.3%, after dipping 0.7% last week.

Chinese blue chips firmed 0.6%.

EUROSTOXX 50 futures and FTSE futures both

edged up 0.16% and 0.1%, respectively. S&P 500 futures

added 0.3% and Nasdaq futures 0.54%, with tension

building ahead of the Federal Reserve policy meeting in Tuesday

and Wednesday.

COUNTING THE DOTS

The Fed is considered certain to keep rates at 5.25-5.5%,

but there is a possibility it might signal a higher for longer

outlook on policy given the stickiness of inflation at both a

consumer and producer level.

"We now expect 3 cuts in 2024, vs 4 previously, mainly

because of the slightly higher inflation path," said Goldman

Sachs economist Jan Hatzius in a note.

He still expects the Fed will start in June, assuming

inflation eases again as expected, and officials will stick with

their dot plot forecasts of three cuts this year.

"The main risk is that FOMC participants might instead be

more concerned about the recent inflation data and less

convinced that inflation will resume its earlier soft trend,"

Hatzius cautioned. "In that case, they might bump up their 2024

core PCE inflation forecast to 2.5% and show a 2-cut median."

The Fed is also expected to begin formal discussion of

slowing the pace of its bond sales this week, perhaps halving it

to $30 billion a month.

Bonds could do with the support given the damage done by a

run of uncomfortably high inflation readings. Two-year Treasury

yields are up at 4.72%, having climbed 24 basis

points last week, while 10-year yields stood at

4.305%.

The probability of a rate cut as early as June has

dropped to 56%, from 75% a week earlier, and the market has only

72 basis points of easing priced in for 2024 compared to more

than 140 basis points a month ago.

The Bank of England meets on Thursday and is expected to

keep rates at 5.25% as wage growth cools, while markets see some

chance the Swiss National Bank might ease this week.

The ascent in the dollar and yields took some shine off

gold, which eased to $2,146.70 an ounce, having fallen 1%

last week and away from all-time highs.

Oil prices have had a better run after the International

Energy Agency raised its view on 2024 oil demand, while the

supply outlook was clouded by Ukrainian strikes on Russian oil

refineries.

Brent added 35 cents to $85.69 a barrel, while U.S.

crude rose 36 cents to $81.40 per barrel.