* Asia stocks ex-Japan in steepest fall since Brexit
* European bourses seen starting down 1.4 to 2.2 pct
* Fed risks, BOJ reports send bond yields higher
* Markets concerned central banks running out of stimulus
* Oil prices extend pullback, commodities soft
* Clinton illness adds to nervous mood
By Wayne Cole
SYDNEY, Sept 12 Asian shares suffered their
sharpest setback since June on Monday as investors were rattled
by rising bond yields and talk the Federal Reserve might be
serious about lifting U.S. interest rates as early as next week.
European bourses were also tipped to open with losses
stretching from 1.4 percent for the FTSE to 2.2 percent
for the DAX.
Reports that the Bank of Japan was considering ways to
steepen the Japanese yield curve, along with worries that
central banks more generally were running short of fresh
stimulus options, hit sovereign debt and risk appetite globally.
MSCI's broadest index of Asia-Pacific shares outside Japan
fell 2.4 percent, pulling away from a 13-month
peak. It was the largest daily drop since the frenzy caused by
Britain's vote in late June to leave the European Union.
On a technical basis the index had been overbought in recent
sessions, leaving it vulnerable to a pullback. Hong Kong,
Shanghai and Australian stocks followed with
falls of more than 2 percent.
The Nikkei 225 lost 2 percent as the safe haven yen
firmed and selling in bonds drove yields on 20-year JGBs to the
highest since March.
Traders were unsure how the BOJ would try to steepen the
yield curve if it goes down that path at a policy review later
this month, but markets are worried that tapering of its buying
in long-dated bonds could be among the options.
EMini futures for the S&P 500, traded in Chicago
during Asian hours, swung 0.6 percent lower, though Treasuries
were finding safe-haven demand.
Some Fed members have been trying to convince markets that
the September meeting would be "live" for a hike, even though
futures <0#FF:> only imply a one-in-four chance of a move.
No less than three Fed officials are expected to speak later
in the day, including board member and noted dove Lael Brainard.
Any hint of hawkishness would likely further pressure bonds and
"Market participants are wondering if maybe she (Brainard)
is being wheeled out to give the market one last warning of a
rate hike at next week's meeting," said Marshall Gittler, head
of research at broker FXPRIMUS.
"The thinking is that if someone as dovish as she is starts
talking like a hawk, people will notice. Her speech will be
Such risks led Wall Street's fear gauge, the VIX index
, to its highest close since late June on Friday. The Dow
shed 2.13 percent on Friday, while the S&P 500
lost 2.45 percent and the Nasdaq 2.54 percent.
Super-low yields have made returns on equities seem
relatively more attractive in comparison, so any sustained climb
in yields would likely weigh on stock valuations.
The yield on benchmark German debt, for
instance, had turned positive for the first time since July 22
and ended at 0.02 percent, its highest since June 23. Yields on
U.S. 10-year and 30-year paper hit 11-week peaks.
In the forex market, the sudden bout of risk aversion
benefited perceived havens such as the yen while hitting carry
trades in higher yielding currencies including the Australian
The Aussie has lost 1.5 percent against the yen in two
sessions to stand at 77.21, while the Japanese
currency was firm on the U.S. dollar at 102.55.
The euro was sidelined on the dollar at $1.1242 after
weak German trade data dragged it down from $1.1271 on Friday.
The dollar index, which tracks it against a basket of six
currencies, eased fractionally to 95.265.
Adding to the jittery mood on Monday was news that
Democratic candidate Hillary Clinton fell ill at a Sept. 11
memorial ceremony and had been diagnosed with pneumonia.
Markets have generally assumed Clinton would win the
presidency and have not truly considered the implications, both
economic and for national security, should Donald Trump prevail.
Geopolitical concerns had already been inflamed by North
Korea's fifth and biggest nuclear test, ratcheting up a threat
that its rivals and the United Nations have been powerless to
North Korea has completed preparations for another nuclear
test, South Korea's Yonhap News Agency reported on Monday,
citing South Korean government sources.
In commodities, oil prices extended Friday's 4 percent fall
in Asia after reports showed increasing oil drilling activity in
the United States, indicating that producers can operate
profitably around current levels and bring on new supply.
Brent crude was off 68 cents, or about 1.4 percent,
at $47.33 a barrel, while U.S. crude lost 75 cents to
(Reporting by Wayne Cole; Editing by Simon Cameron-Moore and