Asian shares take breather, US yields bolster dollar

TOKYO - Asian shares stepped back from their recent highs on Wednesday, while the dollar benefited from rising US Treasury yields and pressure stayed on the euro ahead of expected easing steps from the European Central Bank.

European equities were set to post similar modest losses, with financial spreadbetters expecting Britain's FTSE 100 to open around 0.2 per cent lower, Germany's DAX and France's CAC 40 to start 0.1 per cent down each.

"With no one in a rush to do anything, markets are still hovering near their recent highs but with no one willing to bet big ahead of the central bank meetings and payrolls, the natural position squaring is leading to a consolidation of price action," Jonathan Sudaria, a dealer at London Capital Group, said in a note to clients.

MSCI's broadest index of Asia-Pacific shares outside Japan slipped about 0.4 per cent, pulling away from last week's one-year high.

Hong Kong shares came off from Tuesday's five-month high as some investors took profits, while China shares were dragged down by property counters on concerns about soft demand for new homes in the mainland. The Shanghai Composite Index shed 0.9 per cent.

Japan's Nikkei stock average managed to buck the regional trend and add 0.2 per cent to a fresh 2-month closing high, as a weaker yen helped traders stay optimistic.

"I think short-term people have already left Japan, so to me, individuals and international long-only are gradually putting on positions in Japan, so it's quite a healthy demand situation now," said Kyoya Okazawa, head of global equities and commodity derivatives at BNP Paribas in Tokyo.

US JOBS DATA ON FRIDAY SEEN AS TEST

On Wall Street overnight, shares edged lower but remained close to multi-year highs, with the benchmark S&P 500 ending less than a point off Monday's record close, and helping to push benchmark US bond yields to three-week highs.

The yield on 10-year notes was at 2.585 per cent, slightly down from its US close but well above last week's 11-month lows.

US economic data on Tuesday showed new orders for factory goods rose for a third straight month in April and automakers recorded solid vehicle sales in May, adding more evidence to support market expectations of an improved second quarter performance.

US jobs data on Friday could help determine whether the rise in yields will continue. The US nonfarm payrolls report for May is expected to show that employers added 218,000 jobs, according to the median estimate of 105 economists polled by Reuters.

"Friday's payrolls will provide an important test of whether the rise in US yields and the dollar can be sustained," strategists at Barclays wrote in a note to clients.

"Equities have been resilient in the face of higher core yields due in part to stronger manufacturing output," they said.

The rise in yields helped the dollar reach a fresh one-month high against the yen at 102.80. It was last up about 0.2 per cent at 102.68 yen.

The dollar index, which tracks the greenback against a basket of six major rivals, added about 0.1 per cent on the day to 80.653, not far from Monday's high of 80.681, which was its best level since mid-February.

The euro edged down about 0.1 per cent to $1.3612, and remained not far from a four-month low of $1.3585 touched on Monday. The euro slipped modestly to 139.77 yen, moving back toward a four-month low of 137.98 yen hit on Thursday.

Reuters reported last month that the ECB is preparing a package of policy easing options for its meeting on Thursday that includes interest rate cuts.

Euro zone inflation data on Monday gave the ECB more evidence that steps are needed, as the inflation rate unexpectedly fell to 0.5 per cent in May from 0.7 per cent in April. Economists polled by Reuters had expected inflation to remain steady.

The Australian dollar leapt a quarter of a US cent after gross domestic product for the first quarter beat forecasts.

In commodities trading, gold was steady at $1,245.90 an ounce after plumbing a four-month low of $1,240.61 on Tuesday.

US crude added about 0.2 per cent to $102.83 a barrel, after industry data showed a bigger-than-expected fall in US crude stockpiles.