* Investors cautious, Ukraine crisis, soft U.S. data blamed
* U.S. short-term bond yields rise on Yellen rate hike
* Gold near 5-week low as U.S. short term yields rise
* Emerging market shares resilient, China stimulus hopes
* European shares seen recouping some of Monday's losses
By Hideyuki Sano
TOKYO, March 25 Shares were in a defensive mode
on Tuesday on uncertainty over Ukraine and the global economy,
though still-vague hopes of stimulus measures from China may be
supporting investor sentiment.
Short-dated U.S. Treasuries prices wobbled, taking
short-term U.S. bond yields to six-month highs as investors
fretted over whether the Federal Reserve would raise interest
rates sooner than expected, following comments last week from
Janet Yellen, the bank's new chief.
European shares are expected to recoup some of the previous
day's heavy losses. Spreadbetters saw Germany's DAX
opening 0.4 percent above its close and Britain's FTSE
and France's CAC opening up 0.3 percent.
Japan's Nikkei dropped 0.4 percent while MSCI's
broadest index of Asia-Pacific shares outside Japan
also dipped 0.2 percent.
That followed a lacklustre session on Wall Street, where the
Nasdaq Composite Index led the losses with a fall of 1.2
percent to a five-week low as investors took some money off
recent top performers such as biotech shares. The S&P500 Index
fell 0.5 percent to 1,857.44.
Concerns over Ukraine and soft U.S. manufacturing were
cited as possible catalyst, though market players noted the
selling could also reflect unwinding of positions ahead of the
quarter-end. Markit's U.S. manufacturing survey showed U.S.
factories slowed down in March.
The diplomatic standoff over Ukraine continued as U.S.
President Barack Obama and major industrialised nations warned
Russia on Monday it faces additional economic sanctions if
President Vladimir Putin takes further action to destabilise
"In short, there's nowhere to put money at this point.
Investors are generally upbeat on the U.S. but they want to see
more evidence that the weakness in some of the recent data is
due to a bad weather," said Tohru Yamamoto, chief fixed income
strategist at Daiwa Securities.
In a world full of uncertainty, short-term U.S. bonds
attracted even more attention after Federal Reserve Chair Janet
Yellen explicitly said last week the Fed could raise rates
around six months after its current bond-buying programme ends.
Money market futures <0#FF:> are pricing in some chance of a
rate hike by spring 2015 with a full rate hike to 0.50 percent
fully priced in by August next year.
Even as the U.S. 30-year bond yield fell to 3.56 percent
, near this year's low of 3.525 percent, short-dated
debt yields moved in the opposite direction as investors tried
to price in future rate hikes.
The U.S. two-year yield shot to six-month high of 0.4655
percent on Monday and last stood at 0.437 percent. It
was around 0.35 percent before Yellen's comments.
Rising U.S. short-term rates were undermining the attraction
of precious metals, with gold fetching $1,315.35 per ounce
, close to Monday's near five-week low of $1,307.54.
Silver tumbled to a six-week low of $19.84 an ounce on
Monday and last stood at $19.98.
While rising U.S. rates are generally seen as negative for
emerging markets, many of them have been resilient so far,
helped in part by expectations the Chinese government could
unveil economic stimulus measures following weak Chinese
manufacturing data on Monday.
"The data was pretty bad. It looks almost certain that the
first quarter growth is likely to fall short of the government's
growth target of 7.5 percent. So the government is likely to
take some measures, as it has done a few times in the past year,
to support the economy," said Naoki Tashiro, President of T.S.
Mainland Chinese shares briefly hit a one-month high
as companies linked to Shanghai's free trade zone gained after
media reports indicated restrictions on foreign investors there
could be relaxed.
Analysts said, however, any policy measures adopted by China
to support the economy would be modest and certainly not on the
scale of its global financial crisis strategy, when a torrent of
lending led to an unprecedented build-up of debt.
The Australian dollar, often seen as a liquid proxy for
bets on the Chinese economy, also hit a three-month high of
$0.9158 before erasing gains.
"The message from Chinese policymakers is clear that even
though Q1 growth will be a bit softer, they just won't let (the
economy) collapse," said Sean Callow, currency strategist at
Westpac in Sydney.
Other major currencies were on hold, with the euro changing
hands at $1.3827 and the yen at 102.30 yen to the dollar
(Additional reporting by Cecile Lefort in Sydney, Alice
Woodhouse and Natalie Thomas in Hong Kong; Editing by Eric