* Asian shares hit 4-week high, world shares at 1-1/2-year
* Dollar near 3-week low vs yen, currency basket
* Yuan eases off after midpoint fixing
* U.S. bond yields at 1-month low
* European shares seen little changed
By Hideyuki Sano
TOKYO, Jan 6 Asian shares recovered to four-week
highs on Friday as a surge in the dollar and its borrowing costs
sparked by Donald Trump's election eased, with the U.S. 10-year
yield slipping to one-month lows.
European shares were expected to be little changed, with
financial spreadbetters expecting a flat to 0.1 percent rise in
Britain's FTSE and a flat to slightly weaker opening in
The U.S. dollar stayed near three-week lows against a basket
of currencies though it bounced back slightly as the Chinese
yuan gave up some of its massive gains made in the
previous two days despite Friday's strong midpoint fixing by
China's central bank.
"The market appears to be on risk-on mode. It could be
because of stabilising U.S. yields. It could be signs of
stability in Europe, or a recovery in oil. Anything that has
been battered by higher U.S. rates is coming back," Yoshinori
Shigemi, global market strategist at JPMorgan Asset Management.
MSCI's gauge of the world's stock markets
hit its highest levels in a year and a half, taking its gains
since the start of the year to 1.7 percent, helped by this
week's generally upbeat economic readings in the United States,
China and Europe.
In Asia, MSCI's ex-Japan Asia-Pacific shares index
hit four-week high before paring gains to stand
little changed. It has gained 2.7 percent in the first week of
In contrast, Japan's Nikkei, one of the best
performers since Republican Trump won the Nov. 8 election,
dropped 0.3 percent as the yen gained versus the dollar.
"What's going on is a correction of the 'Trump trade' since
the election. The markets have been trying to fully price in his
policies just based on hopes," said Koichi Yoshikawa, executive
director of finance at Standard Chartered Bank in Tokyo.
"From now on, it's not going to be a simple one-way bet," he
Trump's surprise victory had sparked a major realignment in
Expectations that his administration will bring tax cuts,
higher spending and deregulation have boosted U.S. bond yields
and the dollar, to the detriment of many emerging economies that
have benefitted from cheap dollar funding and had attracted
trillions of dollars from investors shunning low U.S. yields.
Already under pressure from profit taking as the Trump rally
wanes, the dollar extended losses on Thursday as China stepped
up efforts to support the yuan, sparking speculation that it
wants a firm grip on the currency ahead of Trump's Jan. 20
"Chinese authorities might be wary because of rising
possibility that the U.S. President-elect Trump might impose
restrictions on trade with China," said Takahiko Sasaki, market
economist at Mizuho Bank.
While there are many hurdles for designating China as a
currency manipulator or slapping on a higher tariff, Washington
could impose more anti-dumping duties, he added.
Trump has said he would name China as a currency manipulator
and slap a punitive 45 percent tariff.
The cost of borrowing the yuan in Hong Kong,
the main offshore yuan trading centre, sky-rocketed, making it
too costly for speculators to sell the yuan against the dollar.
The offshore yuan gained more than 2 percent in the
last two sessions, its biggest two-day gain on record, to a
two-month high of 6.7833 per dollar before it eased back about
0.5 percent in Asia on Friday to 6.8120.
The dollar also slumped to a three-week low of 115.21 yen
, having shed 1.6 percent on Thursday, its biggest fall in
five months. It bounced back 0.4 percent on Friday to 115.80
The euro also posted its biggest gain in seven months, of
1.1 percent, on Thursday and last fetched $1.0588.
The dollar's index against a basket of six major currencies
tumbled to 101.30, falling more than two percent
from its 14-year high of 103.82 set on Tuesday.
Investors also rushed out of their selling positions in U.S.
bonds, one of the most convincing plays since the election
because Trump's policies are seen as stoking inflation.
The 10-year U.S. Treasuries yield hit a one-month low of
2.344 percent, having fallen about 30 basis points
from its two-year high of 2.641 percent touched on Dec. 15.
Investors also scaled back their expectations of the Fed's
rate hikes this year, with Federal Funds rate futures <0#FF:>
pricing in two rate hikes compared with two and a half at the
peak in December.
Markets largely shrugged off U.S. economic data on Thursday
which was generally strong.
The increase in private payrolls was on the weaker side of
market expectations, however, raising some concerns about the
upcoming jobs data due at 1330 GMT.
On Wall Street, the S&P 500 Index dipped 0.1 percent
as retailers such as Macy's and Kohl's slumped on
weak holiday sales.
Financials were also hit by a fall in U.S. bond yields, but
hi-tech shares shone. They have underperformed since Trump's
victory partly on concerns about his rocky relationship with
The Nasdaq Composite rose 0.2 percent to hit a
record high, led by gains in online retailer Amazon.com
Oil prices were steady as the start of supply cuts by Saudi
Arabia and Abu Dhabi supported the market, but doubts that all
producers will implement output reductions agreed in a landmark
deal last year kept markets from rising further.
International benchmark Brent crude futures traded
at $56.76 per barrel, down 0.2 cents from their close the
(Editing by Richard Borsuk and Kim Coghill)