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

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Nikkei futures, yen steady after Japan elections

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Wall St futures firm before earnings blitz

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Euro underpinned as ECB seen on hold

(Adds analyst quote, updates prices to Asia afternoon)

By Wayne Cole

SYDNEY, July 21 (Reuters) - Asian shares and the yen

held their ground on Monday as Japanese elections proved bad

for the government but no worse than already priced in, while

Wall Street futures braced for earnings from the first of the

tech giants.

Investors were also hoping for some progress in trade talks

ahead of President Donald Trump's August 1 tariff deadline, with

U.S. Commerce Secretary Howard Lutnick still confident a deal

could be reached with the European Union.

There were reports Trump and Chinese leader Xi Jinping were

closer to arranging a meeting, though likely not until October

at the earliest. European Commission President Ursula von der

Leyen has stolen a march and will meet with Xi on Thursday.

In Japan, the ruling coalition lost control of the upper

house in an election on Sunday, further weakening Prime Minister

Shigeru Ishiba's grip on power as a tariff deadline looms.

Ishiba vowed to stay in the position, which along with a

market holiday, limited the reaction and the yen was 0.4% firmer

at 148.29 to the dollar.

"The loss was within the range of expectations, and actually

the outlook was even more pessimistic," said Nissay Research

Institute chief economist Tsuyoshi Ueno.

"In terms of negotiations with the U.S., it is easy to doubt

whether a government with such a weak foundation is reliable as

a negotiating partner," he added. "For the Bank of Japan, if

there is political instability, it will be difficult to raise

interest rates, and pressure on the yen will continue."

The BOJ still has a bias to raise rates further but markets

imply little chance of a move until late October.

While the Nikkei was shut, futures traded at 39,885

and up on the cash close of 39,819.

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

eased 0.1%, while South Korean stocks

added 0.5%.

Chinese blue chips firmed 0.3%, led by rare earth

and construction sectors, as Beijing kept interest rates

unchanged as widely expected.

MEGA CAPS KICK OFF

EUROSTOXX 50 futures and DAX futures both

dipped 0.3%, while FTSE futures were flat.

S&P 500 futures and Nasdaq futures both edged

up 0.2%, and are already around record highs in anticipation of

more solid earnings reports.

A host of companies reporting this week include Alphabet

and Tesla, along with IBM ( IBM ).

Investors also expect upbeat news for defence groups RTX

, Lockheed Martin ( LMT ) and General Dynamics ( GD ).

Ramped up government spending across the globe has seen the S&P

500 aerospace and defence sector rise 30% this year.

Tech giant Microsoft ( MSFT ) issued an alert about "active

attacks" on server software used by government agencies and

businesses, urging customers to download security updates.

In bond markets, U.S. Treasury futures held steady

having dipped late last week after Federal Reserve Governor

Christopher Waller repeated his call for a rate cut this month.

Most of his colleagues, including Chair Jerome Powell, have

argued a pause is warranted to judge the true inflationary

impact of tariffs and markets imply almost no chance of a move

in July. A September cut is put at 61%, rising to 80% for

October.

Powell's reticence on rates has drawn the ire of Trump who

threatened to fire the Fed chief, before backing down. The

spectre of a potential political appointee who would seek to

ease policy sharply has investors on edge.

The European Central Bank meets this week and is expected to

hold its rates steady at 2.0% following a string of cuts.

"The press conference will likely keep highlighting

uncertainty and need to wait for tariff negotiations to conclude

before deciding the next step," said analysts at TD Securities

in a note. "Similarly, its 'meeting-by-meeting' language would

be retained in the release."

The euro was unchanged at $1.1630 in early

trading, having dipped 0.5% last week and away from its recent

near-four-year top of $1.1830. The dollar index was a fraction

lower at 98.373.

In commodity markets, gold firmed 0.5% to $3,367 an ounce

with all the recent action in platinum which last

week hit its highest since August 2014.

Oil prices were caught between the prospect of increased

supply from OPEC+ and the risk European Union sanctions against

Russia for its war in Ukraine could curb its exports.

Brent edged up 0.1% to $69.38 a barrel, while U.S.

crude added 0.2% to $67.50 per barrel.

(Editing by Sam Holmes and Shri Navaratnam)