Asian shares consolidate gains, bonds fly high

NEW YORK Wed May 28, 2014 9:05pm EDT

1 of 3. A man is reflected on an electronic stock quotation board outside a brokerage in Tokyo May 16, 2014.

Credit: Reuters/Yuya Shino

NEW YORK (Reuters) - Asian shares consolidated their recent gains on Thursday while global bond prices surged, pushing their yields to multi-month lows, both supported by expectations of easy monetary policy.

MSCI's broadest index of Asia-Pacific shares outside Japan .MIAPJ0000PUS stood flat near one-year high hit on Wednesday, while Japan's Nikkei share average .N225 shed 0.5 percent after gains after five straight days of gains.

On Wall Street, S&P500 index .SPX snapped a four-session winning streak on Wednesday to end slightly below a record closing high hit on Tuesday, though it hit an intraday record high.

More notable moves were in U.S. and European bond markets. The 10-year Treasuries yield fell to 2.44 percent from 2.52 percent, hitting its lowest level in almost 11 months.

Prior to that, German 10-year Bund yields fell to one-year low of 1.285 percent following an unexpected increase in German unemployment and a deceleration in the euro zone money supply.

The data reinforced expectations that the European Central Bank will introduce further stimulus at next month's meeting.

On top of rising expectations of easing by the ECB, global share prices were underpinned by the view that the Fed is in no hurry to raise rates even as it is reducing its bond purchases.

"In the past, when share prices rise, bond prices fell. But that no longer applies. We are likely to see a combination of high share prices and low bond yields," said Daisuke Uno, chief strategist at Sumitomo Mitsui Banking Corp.

The euro also hit 3 1/2-month low of $1.3587 as investors braced for likely monetary easing by the European Central Bank next week.

ECB executive board member Yves Mersch ramped up the rhetoric on Wednesday, saying the June 5 meeting could yield a combination of policies to tackle low inflation and low credit growth, but the timing of implementation could vary.

That followed similar hints by ECB President Mario Draghi and colleague Ewald Nowotny earlier this week.

Measures being prepared by the ECB are likely to include cutting the deposit rate into negative territory - effectively charging banks to hold cash at the ECB overnight - and bank loans aimed at helping to increase lending to smaller companies.

Even weaker than the euro was the British pound, which has been hit in recent days by a combination of slightly weaker economic data and inklings of nascent political risk to Britain's long-term status-quo after the European election.

The pound fell to a one-month low of $1.6697 on Wednesday and last stood at $1.6713.

As a result, the dollar index .DXY edged near its April 4 peak of 80.599, last standing at 80.553.

As the dollar gained, gold slipped to lowest level in almost four months, trading at $1,258.10 an ounce, licking its wounds after suffering its biggest daily fall since mid-December on Tuesday.

(Editing by Eric Meijer)

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California state worker Albert Jagow (L) goes over his retirement options with Calpers Retirement Program Specialist JeanAnn Kirkpatrick at the Calpers regional office in Sacramento, California October 21, 2009. Calpers, the largest U.S. public pension fund, manages retirement benefits for more than 1.6 million people, with assets comparable in value to the entire GDP of Israel. The Calpers investment portfolio had a historic drop in value, going from a peak of $250 billion in the fall of 2007 to $167 billion in March 2009, a loss of about a third during that period. It is now around $200 billion. REUTERS/Max Whittaker   (UNITED STATES) - RTXPWOZ

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