* Markets roiled by speculation Fed could hike sooner,
* U.S. Treasury yields jump, push dollar higher across the
* Wall St slips, likely to pressure shares in Asia
By Wayne Cole
SYDNEY, March 20 The U.S. dollar was holding
hefty gains in Asia on Thursday as investors wrestled with the
risk that U.S. interest rates could rise sooner and faster than
previously thought, pressuring stock and bond prices.
Short-term U.S. bond yields jumped by the most in almost
three years after Federal Reserve Chair Janet Yellen said the
central bank might end its bond-buying program this fall, and
could start to raise interest rates around six months later.
That combined with a slight rise in the projected path for
rates by Fed members, led the market to bring forward the likely
timing of the first hike in U.S. rates by a couple of months.
"The end result is a market that is left feeling less
comfortable about the outlook for policy than before -- pricing
in more risk of tightening sooner and faster -- despite the
Fed's best efforts in stressing that their views about policy
have not changed," said Michelle Girard, chief economist at RBS
in Stamford, Connecticut.
The new sense of uncertainty unsettled Wall Street, where
the Dow fell 0.7 percent, and the S&P 500 0.61
The early action in Asian stocks was muted with the
Australian market off just 0.2 percent, while MSCI's
broadest index of Asia-Pacific shares outside Japan
eased 0.3 percent.
The futures market for the Fed funds rate <0#FF:> shifted to
pricing in around a 50-50 chance of the first hike in May to
June next year. The timing had been July to August ahead of the
The whiplash was felt most in the short-end of the Treasury
market which is more sensitive to the course of the Fed funds
rate. Yields on two-year notes shot up 8 basis points
to 43 basis points, the sharpest single-day rise since mid 2011.
Yields on 10-year notes climbed 9 basis points
to 2.773 percent. Since they act as the benchmark for bond
yields across the globe, the shift will ripple through to higher
borrowing costs for many other countries.
The rise in U.S. yields in turn helped lift the dollar and
sent the euro reeling back a full cent to $1.3822.
Against a basket of major currencies, the dollar rose 0.8
percent to 80.016.
The dollar also jumped a yen to 102.40, a move which
could help limit the fallout on Japanese stocks. A weaker yen
tends to be seen as positive for Japanese exports and company
The dollar's gains were gold's undoing, sending the metal
down to $1,326.49 an ounce. Its 1.8 percent drop on
Wednesday was the biggest one-day fall since January.
Neither has the prospect of rising rates in the United
States been good for some emerging markets as it threatens to
draw capital away, pressuring equities and currencies.
It also comes as China seems to be weakening its yuan as a
way to support a slowing economy, which puts pressure on other
nations in the region to lower their currencies to stay
competitive on exports.
The yuan hit an 11-month low on Wednesday to be
down 0.8 percent for the week, a huge move for the normally
tightly controlled currency. Last weekend the People's Bank of
China (PBOC) doubled the daily trading band allowed for the yuan
to 2 percent from the mid-point that it sets each day.
In oil markets, Brent futures fell 94 cents to $105.85 per
barrel as worries over sanctions affecting Russian oil
U.S. crude oil edged up 5 cents to $100.42 on an
inventory draw at the benchmark's pricing hub and ahead of the
front month contract's expiration.
(Editing by Shri Navaratnam)