* Dollar index up more than 4 percent in less than two weeks
* U.S. bonds, Japanese debt extend gains in early trade
* Japan, Australia stocks slip; Whitehaven plunges
* Oil, gold and silver weaken
By Saikat Chatterjee
HONG KONG, May 16 Asian equities are on course
for their biggest daily drop in two months and the dollar
strengthened on Monday with further gains seen as renewed
concerns of a possible euro zone debt restructuring prompted
market players to reduce risk.
European shares are also expected to open lower, weighed
down by the euro's weakness, according to financial spread
Having gained by more than 4 percent in less than two weeks,
the dollar extended its biggest winning streak against a
basket of currencies this year, helped by violent swings in
commodities and troubles in the euro zone.
The euro fell as low as $1.4063 , its lowest in six
weeks, having dropped 5.9 percent from a 17-month peak of
$1.4940 hit less than two weeks ago.
Cooling demand for risky trades was also evident in
commodity markets and Asian currencies, which weakened while
safe-haven assets like U.S. Treasuries and Japanese bonds
"Investors are risk-averse right now," said Jackson Wong,
vice president of Tanrich Securities in Hong Kong. "Investors
are unwinding their dollar carry trades, and it wouldn't be
until probably next month that we see the dollar relenting."
Most stock markets in the region were in the red on Monday
with Hong Kong and Jakarta leading losses as funds unwound their
positions in resource-related stocks.
MSCI's index of Asia Pacific shares outside Japan
was down 1.3 percent, extending a two-week
decline and set for its biggest daily drop since mid-March.
Japan's Nikkei was down nearly a percent with banks
among the main losers and Australia's benchmark index
fell 1.2 percent.
Shares in Whitehaven Coal plunged as much as 14.5
percent and were trading down 13 percent after the firm called
off a sale after a five-month auction failed to find a buyer at
the right price.[ID:nL4E7GF0BK]
COMMODITIES, ASIAN FX WEAKENS
While some large bids in the euro are strewn around the
$1.4050 to $1.4000 region, just below that, from $1.3900 to
$1.4000, is also an area where stop-loss orders are said to be
lurking, according to traders. [ID:nL4E7GF0CQ]
Even as euro zone officials scrambled to avert a fresh
precipitation of the debt crisis, an unexpected complication for
financial markets this week is the arrest on sexual assault
charges of International Monetary Fund chief Dominique
A Greek official told Reuters that Strauss-Kahn's arrest
"might definitely cause some delays in the short term," but
would not change the IMF's policy on Greece. [ID:nN15241568]
A meeting of Eurogroup finance ministers, followed by an
Ecofin meeting of EU finance ministers on Monday, could provide
further direction for the euro.[ID:nLDE66D1JB].
Weighing on the euro has also been weakness in commodities
with oil and gold softening after recent sharp volatility.
"The euro had been bought only because rising commodity
prices were fueling expectations of more rate hikes in the euro
zone. With commodity prices clearly running out of steam,
there's no reason to buy the euro," said Daisuke Karakama,
market economist at Mizuho Corporate Bank and a long-time euro
Most Asian currencies also weakened with the Malaysian
ringgit among the worst performers after central bank
chief Zeti Akhtar Aziz said the country faced rising inflation
China last week raised reserve requirements for banks while
Indian state-run oil firms raised domestic petrol prices,
indicating rising price pressures in the region. [ID:nL3E7GC2W4]
In bond markets, U.S. government bonds extended Friday's
gains as investors' preference for safety pushed 10-year yields
down to 3.16 percent from 3.23 percent on Thursday.
Ten-year Japanese bond yields dropped below
1.110 percent to the lowest since late November.[ID:nL4E7GG02N]
The dollar's strength chewed into oil's gains last week with
U.S. crude futures CLc1 down nearly 1 percent on Monday below
$99 a barrel. [ID:nL4E7GF0B4]
Gold and silver also edged lower.
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(Additional reporting by Clement Tan, Masayuki Kitano and
Krishna Kumar; Editing by Matt Driskill)