* Markets roiled by speculation Fed could hike sooner,
* U.S. Treasury yields up sharply, dollar higher across the
* Asian share markets follow Wall St into the red
* China's yuan skids to its lowest in a year
By Wayne Cole
SYDNEY, March 20 The U.S. dollar was hanging
onto 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, slugging 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.
Combined with a slight rise in the projected path for rates
by Fed members, that 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.
Yellen sought to use her news conference to emphasize that
rates would stay low for awhile and rise only gradually, but
the message was lost on skittish markets.
The new sense of uncertainty unsettled Wall Street, where
the Dow fell 0.7 percent and the S&P 500 0.61
The selling flowed through to Asia, where Japan's Nikkei
skidded 1.2 percent while the Australian market lost
1.1 percent. MSCI's broadest index of Asia-Pacific
shares outside Japan shed 1.4 percent to a
The Nikkei took a further blow when data showed foreign
investors sold a record 1.09 trillion yen ($10.7 billion) of
Japanese stocks last week.
Yellen's words led the futures market for the U.S. Fed funds
rate <0#FF:> to shift to pricing in around a 50-50 chance of the
first hike in May to June next year. The timing had been July to
Yet many were not convinced the timetable had moved much at
all. A Reuters poll of 17 primary dealers found 10 still
expected the first hike to come in the second half of 2015, and
four were still tipping 2016.
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 were at 2.75 percent,
having risen 9 basis points on Wednesday. Since they act as the
benchmark for bond yields across the globe, the shift will
ripple through to higher borrowing costs for many countries.
The rise in U.S. yields in turn helped lift the dollar and
sent the euro reeling back a full cent to $1.3826.
Against a basket of major currencies, the dollar was holding at
79.981 after adding 0.8 percent on Wednesday.
The U.S. currency was also up at 102.31 yen, having
jumped a full yen overnight and away from important chart
support in the 101.20/30 zone.
The dollar's gains were gold's undoing, sending the metal
down to $1,333.25 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 skidded to its lowest in a year on Thursday at
6.2280 per dollar, a long way from where it started
the year at 6.0515 and a huge move for the normally
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 edged up 28 cents to $106.13
per barrel on Thursday, while U.S. crude oil added 36
cents to $100.73.
(Editing by Eric Meijer & Shri Navaratnam)