GLOBAL MARKETS-Dollar near five-week low, Japan stocks tumble
* Dollar hovers near five-week low vs basket of currencies
* Stronger yen hurts Tokyo's Nikkei, down 2.1 pct
* Asian shares edge higher
TOKYO, July 26 (Reuters) - Tokyo shares fell sharply on Friday as the yen rose to a two-week high versus the dollar, with investors turning cautious ahead of the U.S. Federal Reserve's policy meeting next week.
A Wall Street Journal report that the Fed may debate changing its forward guidance to help ram home its message that it will keep interest rates low for a long time to come put the dollar on the back foot overnight. But most economists and traders expect the Fed could start tapering in September.
The dollar eased 0.2 percent against a basket of major currencies, not far from a five-week low touched on Thursday.
Against the yen, it was down 0.1 percent at 99.12 yen. The euro was steady at $1.32755 after gaining 0.6 percent overnight on the back of positive economic reports from the euro zone.
The firmer yen weighed on Tokyo's Nikkei share average , which sagged 2.1 percent.
Data showed Japan's core consumer prices turned positive and rose 0.4 percent last month from a year earlier, marking the fastest pace of increase in nearly five years, suggesting the government's efforts to erase years of deflation was showing early success.
"The rise in the CPI is mainly due to the weaker yen, which is raising import costs, so it's too early to be overly optimistic. But we can say that 'Abenomics' is very much in play," said Nobuhiko Kuramochi, strategist and economist at Mizuho Securities in Tokyo.
Asian shares as measured by MSCI Asia-Pacific ex-Japan index inched 0.2 percent higher, but held below its 50 percent retracement of its slide from a 22-month high on May 9 to June 26, when it hit an 11-month low.
Seoul shares were steady, while Samsung Electronics Co Ltd added 0.1 percent after it said April-June operating profit increased 47.5 percent from a year ago to 9.53 trillion won ($8.54 billion), in line with its estimate.
Overnight, a gauge of planned U.S. business spending on capital goods rose in June, while new claims for jobless benefits edged higher last week but remained within a range that suggests the labour market's recovery is on track.
U.S. corporate earnings have been mixed in the latest quarter. With 47 percent of the S&P 500 companies having reported earnings so far, about 68 percent have topped profit forecasts, above the historical average of 63 percent. About 56 percent have reported better-than-expected revenue, a rate that is below the historical average.
In the commodity markets, Brent crude prices held steady below $108 a barrel after gaining 0.4 percent overnight on the back of the weaker dollar.
Gold was steady after a 0.9 percent rise in the previous session, also boosted by a weaker dollar.
Copper prices added 0.1 percent to above $7,000 a tonne after slipping 0.6 percent on Thursday to snap a five-day winning run on concerns that a slowing Chinese economy may dent demand from the world's top consumer.