* Russian rouble hits 5-year low vs dollar
* Dollar index at 2-week high, U.S. yields at 3-week low
* Yuan rebounds but still below PBOC fixing
* European shares seen falling slightly
By Hideyuki Sano
TOKYO, Feb 27 Asian shares struggled to find a
solid footing on Thursday as escalating tensions in Ukraine sent
investors scurrying to the safety of the dollar and U.S.
Japanese stocks skidded, with the Nikkei slipping
0.4 percent although MSCI's broadest index of Asia-Pacific
shares outside Japan managed to erase early
losses to eke out small gains on a rebound in Chinese shares.
European shares are expected to fall slightly, with
Germany's DAX and Britain's FTSE seen falling
about 0.1 percent.
Wall Street's failure to extend its rally above historical
highs on Wednesday did not help soothe fears that a wider
conflagration in Ukraine could intensify risk aversion.
Russian President Vladimir Putin ordered drills by his armed
forces to test combat readiness in western Russia, near the
border with Ukraine, prompting Washington to warn a military
intervention would be a "grave mistake."
"Clearly it's all very sensitive at the moment," said Mitul
Kotecha, head of global foreign exchange strategy for Credit
Agricole in Hong Kong.
"I think that's probably what could provoke a bigger impact,
because obviously you could end up seeing a big escalation of
tensions between Russia and the West," he added.
The Russian rouble tumbled to a five-year low against the
dollar and stayed near an all time-low against
the euro hit on Wednesday.
The Ukrainian hryvnia hit record lows on Wednesday after
Ukraine's central bank said it was abandoning a managed exchange
Safe-haven U.S. Treasuries benefited from the sombre mood in
markets, with the 10-year U.S debt yield falling to a three-week
low of 2.662 percent, despite surprise strength in
U.S. new home sales data.
Investors are now looking to comments from Fed chief Janet
Yellen's testimony at a U.S. Senate committee on Thursday on her
views on a recent run of soft U.S. data, which investors chalk
up to bad weather, rather than weakening in the fundamentals.
If that is the case, investors are likely to expect the Fed
to keep trimming its bond purchase by $10 billion at each policy
meeting to end it completely by the end of this year.
The dollar also strengthened broadly, with the dollar index
hitting its highest level in about two weeks.
"Given U.S. debt yields fell and that U.S. shares were
steady to softer, the dollar's strength should be regarded as a
reflection of risk aversion rather than rising confidence in the
U.S. economy," said Masafumi Yamamoto, chief strategist at
The euro traded at $1.3681, after having fallen 0.4
percent to two-week lows on Wednesday. Against the yen, which
also tends to rise when markets are under stress, the dollar was
little changed at 102.37 yen.
The Chinese yuan remained pressured near a seven-month low
hit on Wednesday, trading below the daily fixing set by Beijing
for a third consecutive day.
The yuan stood at 6.1300 per dollar, near
Wednesday's low of 6.1351 and below the fixing at 6.1224.
Traders suspect the People's Bank of China (PBOC) is
possibly aiming to inject more two-way volatility into the
market and prepare it for more reforms.
"It's possible that the Chinese authorities think they need
a weaker yuan now to bolster the economy," said Hirokazu
Yuihama, senior strategist at Daiwa Securities.
Hong Kong shares rose, led by state oil giant Sinopec but
the CSI300 of the biggest Shanghai and Shenzhen
A-share listings, under pressure from concerns over slowdown as
well as fear of lending curbs on property developers, slipped to
near an eight-month low set on Wednesday.
Most other Asian currencies held steady for now but the
tense backdrop could put renewed pressure on emerging market
currencies and shares. They were battered earlier this year by
concerns about slower global growth and the tapering of the U.S.
Federal Reserve's monetary stimulus.
Turkey, one of the hardest-hit countries, saw its lira
slipping to three-week lows, dented also by a corruption
scandal embroiling Prime Minister Tayyip Erdogan's government.
Brazil's central bank raised its benchmark interest rate on
Wednesday to 10.75 percent from 10.50 percent as expected,
slowing the pace of monetary tightening to avoid hurting an
economy that is flirting with recession.
Copper dropped to a three-month low below $7,000 a
tonne, extending its losses over the past week on concerns about
slower growth in China.
Gold also stepped back after hitting a four-month high on
Wednesday as the dollar strengthened broadly. It last stood at
$1,325.90 an ounce, off Wednesday's high of $1,345.35.