Shares consolidate, dollar steadies after rally
Asian shares steadied on Friday while the dollar took a breather after its recent broad rally spurred profit-taking, with some investors wondering if a fresh batch of encouraging economic data would put further upward pressure on U.S. yields.
Financial spread bets are for major European markets <.FTSE> <.FCHI> <.GDAXI> to open flat to 0.1 percent higher. <.L> <.EU>
The MSCI Asia Pacific ex-Japan index <.MIAPJ0000PUS> was barely changed, set for a weekly gain of 0.8 percent. The index has risen 13.6 percent so far this year, recovering three-quarters of an 18 percent loss posted last year.
Japan's Nikkei <.N225> steadied and held near an 8-month high reached on Thursday. The benchmark is up nearly 20 percent this year, reclaiming all of last year's 17 percent drop. <.T>
Analysts say the rebound is being driven mostly by investors buying back assets which they sold heavily last year when concerns were intensifying over the euro zone's debt crisis spinning out of control and hurting global growth.
Sentiment has improved since then on signs of stronger U.S. growth, after Greece secured a second international bailout and capital conditions improved at big U.S. banks. Fears of another global financial crisis have eased substantially, too, as central banks took aggressive measures to flood the financial system with ample cash.
The dollar dipped 0.1 percent against the yen to 83.48, retreating from an 11-month high of 84.187 touched on Thursday. The euro steadied against the dollar at $1.3087, off Thursday's one-month low of $1.3004.
The dollar's strength is closely linked to the rise in U.S. Treasury yields, where views on the outlook are mixed.
The dollar's upside depends on whether U.S. yields will keep rising, and that in turn will determine how long a risk-on momentum will last, said Tohru Sasaki, head of Japan rates and FX research at JPMorgan Chase Bank in Tokyo.
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U.S. jobless claims: http://link.reuters.com/hug27s
U.S. strategic oil reserve: http://link.reuters.com/cak86s
S&P 500 vs 10-yr Treasury: http://link.reuters.com/cak86s
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YIELD ASSESSMENT KEY
The Standard & Poor's 500 index <.SPX> closed above 1,400 on Thursday for the first time since June 2008, having risen about 11.5 percent this year without a major pullback, while European shares have also nearly recovered last year's declines.
The market is still going through a relief rally more than chasing a new trend on global growth, Barclays Capital analysts said.
We are getting into profit-taking territory, they added.
Positive economic data has prompted a scaling back of expectations for more monetary easing by the Federal Reserve, putting upward pressure on U.S. yields.
U.S. Treasuries stabilized on Thursday after the biggest selloff in four months, with the 10-year yield falling to 2.28 percent from a high of 2.35 percent reached earlier in the week, the highest since late October.
Thursday's data showed claims for U.S. jobless benefits fell to a four-year low last week, while the New York Federal Reserve's Empire State general business conditions index hit its highest since June 2010 last month. The Philadelphia Federal Reserve Bank's business activity index also showed manufacturing kept growing in the region this month.
Since U.S. yields broke recent ranges, what had served as a ceiling may become a floor, but U.S. yields aren't likely to keep rising just yet, said a manager at a Japanese insurance firm, adding that the 10-year Treasury yield could top out at around 2.4-2.5 percent.
U.S. Treasury Secretary Timothy Geithner noted challenges the U.S. economy faces on Thursday, such as creating jobs and fostering expansion, while Richmond Federal Reserve Bank's president, Jeffrey Lacker, said on Friday that U.S. interest rates would need to rise sooner than late 2014, the date until which the Fed has said it would keep interest rates near zero.
OIL REBOUNDS
With the dollar taking a pause, the euro's rebound helped support gold on Friday, but bullion was set for a third straight week of losses as investors shifted to riskier assets.
There's little need for a safe haven at the moment, said Lynette Tan, an analyst with Phillip Futures in Singapore.
Spot gold was up 0.1 percent to $1,659 an ounce, while copper slipped 0.3 percent to $8,541 a tonne, although an improved U.S. economic outlook supported prices.
Oil rebounded after a sharp decline on Thursday when Reuters reported that Britain had decided to cooperate with the United States in an agreement to release oil from government-controlled strategic reserves.
U.S. crude was up 0.3 percent at $105.45 a barrel on Friday and Brent was up 0.3 percent near $123 a barrel.
Asian credit markets firmed strongly on Friday, with the spread on the iTraxx Asia ex-Japan investment-grade index narrowing by 8 basis points.
(Additional reporting by Lewa Pardomuan in Singapore; Editing by Michael Watson)
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