* Rising bond yields pressure countries with current account
* Indonesian rupiah lowest since 2009, Indian rupee slides
* Markets await minutes of Fed meeting on Wednesday
By Wayne Cole
SYDNEY, Aug 19 India's currency cartwheeled to
historic lows on Monday while markets in Indonesia took a spill,
evidence of how rising U.S. yields are making it harder for
emerging nations to fund their current account deficits.
The turbulence heightened investor caution ahead of
Wednesday's minutes of the Federal Reserve's last policy
meeting, with many fearing they might only add to the confusion
about when it might scale back stimulus.
That helped gold reach its highest in two months, while
keeping share markets constrained across Asia.
In Europe, Britain's FTSE futures inched up 0.2
percent in early deals. The German DAX futures were down
0.04 percent, as bund yields climbed to the highest since early
The Indian rupee slid as far as 62.50 per dollar,
emphatically breaching the previous low of 62.03. The share
market lost 1.4 percent, on top of a 4 percent drubbing
The currency has been hurt by investor frustration at the
slow pace of economic reform in India, which has made it harder
for the country to finance its hefty current account shortfall.
The Reserve Bank of India has tried to restrict how much
Indian residents and companies can send offshore, but that only
raised fears of outright capital controls that would further
undermine the confidence of foreign investors.
"The foreign investor community want tangible and ambitious
reforms that look and feel like a worthy 'second generation' to
the fundamental measures adopted in the early 1990s," Westpac
analysts said in a note.
They also found it "curious" the central bank would be
fighting against a depreciation in the rupee given that it would
help boost exports and limit imports over time.
Indonesia's rupiah shed 0.9 percent to four-year lows at
10,475 per dollar, with share and bond markets
weakening in the wake of data showing a sharp widening in the
country's current account deficit.
The task of attracting funding for these shortfalls has
become ever tougher as investors priced in a start to Fed
tapering and pushed up U.S. market rates.
Yields on 10-year Treasury debt were up near two-year highs
at 2.87 percent on Monday, putting upward pressure
on borrowing costs across the globe.
The strain showed in MSCI's broadest index of Asia-Pacific
shares outside Japan which fell 0.5 percent. It
had ended last week with gains of 1.45 percent, but that merely
recovered ground lost during the previous two weeks.
Stocks in Shanghai rebounded to be up 0.6 percent,
The Korean market eased 0.1 percent but Thai shares shed
1.2 percent as data there showed the economy slipped
into recession last quarter.
As usual Tokyo's Nikkei share average went its own
way and rose 0.8 percent on Monday, brushing aside data showing
the third-largest trade deficit on record as imports rose even
faster than exports.
Australia's S&P/ASX 200 index was dead flat.
Crucial later in the week will be an early reading on
Chinese manufacturing from HSBC. Recent data suggested
the economy might be stabilising and any improvement in the
purchasing manager index will be welcomed by Asian investors.
GOLD ON A ROLL
The U.S. dollar gave up early, modest gains to stand at
$1.3326 per euro, barely moved from Friday. Against the
yen it pulled back to 97.59, while the dollar index was a
shade firmer at 81.324.
The dollar has been in gradual decline for the past six
weeks so, in part on concerns the prospect of Fed tapering would
scare foreign investors out of U.S. bonds.
Figures out last week showed China and Japan -- the two
largest foreign holders of U.S. debt -- were at the forefront of
a $66 billion exodus from long-term U.S. Treasuries in June,
dumping a net $40 billion.
Still, at some point yields should reach levels that are
attractive to investors once more.
"We continue to believe that tapering will begin at the
September meeting and, hence, support the USD, especially
against high-yielding currencies," analysts at Barclays said in
They added, however, there was a chance the Fed may have
begun discussing lowering its threshold rate for unemployment as
a way to convince investors that rates will remain near zero for
a long time to come.
"Any discussion in this regard is likely to be viewed as a
dovish surprise by the market and lead to a near-term rally in
the belly of the Treasury curve," said Barclays. The dollar
would also be vulnerable in such an event.
Hopes for a pick-up in growth globally has also supported
commodities recently, with copper holding at $7,372 a tonne
after hitting a 10-week peak of $7,420 on Friday.
Gold and platinum have gained as well, though they could be
threatened if the Fed does wind down its stimulus. Gold made a
fresh two-month high of $1,384.10 an ounce.
Oil futures shrugged aside early losses to sneak higher,
having recorded their the biggest weekly percentage gain in six
weeks as turmoil in Egypt and Libya stoked worries about supply.
Brent crude futures for October were little changed
at $110.38 a barrel, was were U.S. oil for September