*

Asian stocks drift, with Nikkei rising on weak yen

*

Yen wallows at five-month lows, set for 10% fall in 2024

*

Fresh warnings from Japanese authorities nudge a bit

higher

*

Moves muted due to thin year-end trading

(Updates to mid-Asian afternoon)

By Ankur Banerjee

SINGAPORE, Dec 27 (Reuters) - Asian stocks nudged higher

on Friday while the dollar was firm, keeping the yen rooted near

five-month lows in thin year-end trading as investors looked

ahead to 2025, when the Federal Reserve is expected to take a

cautious approach to rate cuts.

The Bank of Japan, on the other hand, could raise rates in

the near-term, with the summary of opinions at the bank's

December meeting released on Friday keeping alive the chance of

a January hike. The BOJ had chosen to stand pat in its December

meeting.

That has left the yen loitering around levels last

seen in July. On Friday, it was a tad stronger at 157.59 per

dollar, still down over 10% in 2024 against the dollar, its

fourth straight year of decline.

The currency has been under pressure from a strong dollar

and a wide interest rate gap that persists despite the Fed's

rate cuts, with traders wary of another bout of intervention

from Tokyo as the yen approaches 160 levels.

"The Japanese government has been alarmed by foreign

exchange developments, including those driven by speculators,

and will take appropriate action against excessive moves," said

Japan Finance Minister Katsunobu Kato on Friday, reiterating his

warning to take action against excessive currency moves.

In stocks, MSCI's broadest index of Asia-Pacific shares

outside Japan was 0.1% higher at 575.11, on

course for nearly a 9% gain this year. Japan's Nikkei

shot up 2% due to a weak yen, set for about 21% rise in 2024.

China's blue-chip CSI300 Index was 0.1% higher

while the Hong Kong's Hang Seng index rose 0.3% following

a holiday on Thursday.

"There's obviously a lull at the moment and barring an

extreme surprise the markets are probably going to lack

direction," said Kyle Rodda, senior financial market analyst at

Capital.com.

European markets are likely to open higher, with Eurostoxx

50 futures up 0.5%, German DAX futures up 0.3%

and FTSE futures 0.08% higher.

With only a handful of trading days remaining in the year,

investor focus has switched to 2025, with the Fed's policy path,

the incoming Trump administration and its tariff-related

policies and geopolitical worries in the spotlight.

The Fed jolted markets earlier this month as it lowered

rates by 25 basis points but projected just two rate cuts next

year, down from four it had projected in September. Traders are

pricing in 37 bps of easing next year with the next cut fully

priced in for June.

"Simply put, if the markets can feel comfortable with the

notion of two cuts from the Fed next and that's subsequently

backed by goldilocks data once trading conditions normalise,

then the bull market may have more legs," said Rodda.

The shifting expectations around U.S. rates have led the

10-year Treasury yield to its highest since early

May. It was last at 4.57% on Friday.

The dollar index, which measures the U.S. unit

against six other large peers, was at 108.11, not far from the

two-year high it touched last week. The index is up 6.6% so far

this year.

In commodities, gold prices were flat at $2,633 per

ounce, set for about a 28% rise for the year, their strongest

yearly performance since 2011.

Oil prices were little changed but set for a weekly rise as

investors await economic stimulus efforts in China, the world's

biggest oil importer. Brent crude futures and U.S. West

Texas Intermediate crude were flat on Friday.