RPT-GLOBAL MARKETS-Government bond prices tumble; oil steady
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HONG KONG, June 2 (Reuters) - Japanese government bond prices dropped on Monday, hit by negative sentiment ahead of auctions this week and with global inflation on the rise, while oil prices held steady above $127 a barrel. Asian stocks edged higher.
Bond yields in the euro zone, Japan and the United States hit 2008 highs last week as investors scrambled to protect their portfolios from inflation with the worst of the credit crisis apparently over.
"With market sentiment still bearish, the supply this week will be a challenge for investors as to how much they can absorb," said Chotaro Morita, chief JGB strategist at Barclays Capital in Tokyo.
Japan's Nikkei share average .N225 was 0.2 percent higher, with Sony Corp (6758.T) one of the biggest gainers after Goldman Sachs upgraded shares in the company to "buy." Technology stocks also boosted Taiwan's TAIEX index , up 0.23 percent.
The MSCI index of shares in the Asia-Pacific region outside Japan .MIAPJ0000PUS added 0.1 percent, while a pan-Asian index rose 0.4 percent .MIAS00000PUS.
Shares in Thailand .SETI were expected to lose ground on Monday after a tense weekend street protest aimed at forcing the government of Prime Minister Samak Sundaravej to step down. [ID:nBKK268711]
"Foreign investors are queuing up to sell shares as the political turbulence drags on," a dealer at BT Securities said.
Nervousness about an upcoming 10-year note auction in the Japanese government bond market knocked down the cash market on Monday and sent 10-year futures to the lowest since August 2007.
June 10-year futures 2JGBv1 dropped 0.89 point to 133.56.
The benchmark 10-year yield has surged about 50 basis points since mid-March, when the U.S. Federal Reserve backed a plan to bail out Bear Stearns and accepted a wider array of collateral to provide liquidity to the market.
Fears about inflation also have investors growing impatient with low yields in their portfolios. Central banks around the world continue to be under pressure to contain price pressures.
Data on Monday showed annual inflation in Australia rose to 4.5 percent, the highest in the 5-year history of the gauge and well above the Reserve Bank of Australia's 2-3 percent target.
Long-term expectations for U.S. inflation soared to the highest since April 1995, according to a report on Friday, heightening the danger that perceptions of high prices will become embedded within consumers.
Also, prices of soybeans and corn both rose last week, driven in part by fears over supply because of weather concerns and a strike by farmers in Argentina.
Crude oil prices were stable with the July contract CLc1 largely unchanged at $127.23 a barrel. However, oil prices have climbed a third so far this year and futures prices have risen above the spot market, leading many analysts to believe energy costs will continue to increase for the forseeable future.
The U.S. dollar rose against major currencies, tacking on more gains after posting its first back-to-back monthly rise since January 2007. The dollar was up 0.1 percent at 105.43 yen JPY=, and the euro was down 0.1 percent at $1.5535 EUR=.
A stronger dollar is often viewed as a positive for many Asian economies that depend on U.S. consumer demand for their export markets. Rising inflation in the world's largest economy sparked some worries about the knock-on effect in Asia, but evidence so far has been mixed.
South Korean exports last month jumped 27.2 percent compared with a year earlier, the fastest pace since August 2004.
"The U.S. economy may be slowing, but developing countries are still bullish, which is supporting exports. Exports have grown to the Middle East, South America, and rapidly growing economies like India and China," said Song Jae-Hyeok, an economist with SK Securities.
"But with volatile oil prices, it's hard to tell whether June exports will also remain strong." (Additional reporting by Chikako Mogi in TOKYO; Editing by Ian Geoghegan)
