Asian shares fell on Thursday as doubts set in about whether European leaders can agree on a plan to tackle the euro zone's two-year-old debt crisis at a high-stakes summit on Friday.

But in Europe itself shares were expected to rise, after stuttering in the previous session, amid hopes of further support measures for strained money markets from the European Central Bank (ECB).

With big set-piece events looming -- the ECB's final monetary policy meeting of the year later on Thursday and the European Union summit on Friday -- investors were unwilling to commit new funds, leaving riskier assets such as commodities and emerging market currencies subdued.

We aren't expecting any great resolution, said Su-Lin Ong, senior economist and fixed income strategist at RBC Capital Markets in Sydney. Markets are quite hopeful but we've had plenty of EU summits and they tend to disappoint ... There are no silver bullets here.

The euro edged down ahead of the ECB meeting that is expected to deliver a 25 basis points rate cut, while the Australian dollar fell as disappointing employment data cemented expectations for further cuts in interest rates.

JAPANESE MACHINERY SLUMP

MSCI's broadest index of Asia Pacific shares outside Japan <.MIAPJ0000PUS> dropped 0.8 percent, while Tokyo's Nikkei share average <.N225> lost 0.7 percent, hit also by a slump in machinery orders that suggested Japan's recovery is faltering.

S&P 500 futures were slightly lower, after small gains on Wall Street <.DJI> <.SPX> on Wednesday. <.N>

But spreadbetters expected London's FTSE <.FTSE> to open up around 0.5 percent, and Frankfurt's DAX <.GDAXI> and Paris' CAC 40 <.FCHI> to open around 1.1 percent higher. <.EU> <.L>

Global equities have enjoyed a brisk rally in recent days, with the MSCI All-Country World Index <.MIWD00000PUS> bounding 9 percent since the start of last week, on hopes that the threat of financial meltdown would force European leaders to set aside disagreements and come up with a coherent plan to save the euro.

France and Germany will present a plan to amend EU treaties to anchor stricter budget discipline, aimed at restoring market confidence and stopping the crisis spiraling out of control.

But optimism was tempered on Wednesday, when a senior German official told a pre-summit briefing he was more pessimistic than last week about reaching an overall deal.

My sense is that it could be like the previous EU summit on October 26, where we saw some progress but details remained sketchy, leaving uncertainty in the market, said Soichiro Monji, chief strategist at Daiwa SB Investments in Tokyo.

ECB ROLE

A media report that the G20 was preparing a $600 billion lending facility for the International Monetary Fund (IMF) to help Europe gave a late lift to U.S. stocks and briefly boosted the euro, but the effect faded after it was denied by G20 and IMF officials.

Most economists expect the ECB to cut its key interest rate back to the record low 1 percent it reached during the financial crisis in 2009. Investors will be looking for any hint the ECB will intensify its bond-buying support to the currency bloc's struggling periphery.

Sources have also told Reuters the bank is likely to start offering banks funding for two or even three years for the first time ever, to try to prevent the euro zone crisis precipitating a credit crunch that chokes the bloc's economy.

They need to introduce longer term LTROs (long-term refinancing operations) in the order of two to three years and they need to ease collateral conditions, said Greg Gibbs, a strategist at RBS.

The euro slipped a little to just below $1.34, within the tight $1.3332/3486 range of the past week.

The Australian dollar fell a third of a cent to$1.0249 after data showed one of the developed world's most resilient economies shed 6,300 jobs in November, while the unemployment rate rose a tick to 5.3 percent.

The cautious mood seeped into Asian credit markets, with spreads on the iTraxx Asia ex-Japan investment grade index, a gauge of risk appetite, widening by a couple of basis points.

Risk aversion also supported U.S. Treasuries, with benchmark 10-year notes dipping 2/32 in price to yield 2.042 percent.

Commodity markets were subdued, with U.S. crude edging up and Brent crude gaining nearly 50 cents to $110 a barrel, while copper was little changed around $7,830 a tonne.

Fundamentals are better than expected and the U.S. and Chinese economies seem to be stabilizing, but trading will be cautious before Friday's Europe meeting, said Tetsu Emori, a fund manager with Astramax Co. in Tokyo.

The market's direction will be determined after the summit, and a good result will send prices higher.

Gold, which in recent months has largely switched from a negative to a positive correlation with riskier commodities as safe-haven investors have preferred the dollar to precious metals, slipped 0.3 percent to around $1,737 an ounce.

(Additional reporting by Hideyuki Sano in Tokyo, Miranda Maxwell in Melbourne and Frances Kan in Singapore; Editing by Richard Borsuk)

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