* Asian shares supported by speculation of China stimulus
* Euro undermined as ECB talk drags down bond yields
* US yields fall as auctions draw strong demand, inflation
* Emerging markets extend their recent rally, hit
By Wayne Cole
SYDNEY, March 28 The euro was wallowing near
three-week lows in Asia on Friday as speculation intensified
that the European Central Bank might ease policy further, while
similar hopes of stimulus in China gave a fillip to Asian
Speculation about the possibility of Chinese stimulus got a
boost when Premier Li Keqiang was quoted by state media as
saying the government would roll out targeted measures step by
step to aid the economy.
Shares in Shanghai edged up 0.5 percent, while MSCI's index
of Asia-Pacific shares outside Japan added 0.6
percent. Japan's Nikkei was flat as trading wound down
ahead of the end of the financial year on March 31.
All the talk of a possible easing by the ECB pulled down
bond yields across the European Union and undermined the euro.
Peripheral European bond yields hit a multi-year trough on
Thursday while the premium that U.S. two-year debt pays over
German paper widened to its fattest since late 2012.
That saw the euro peel off to $1.3744 and a long way
from the March peak of $1.3967. Its largest losses came against
the New Zealand dollar which has been on a tear since
the country's central bank raised interest rates a couple of
The Reserve Bank of New Zealand has all but promised to hike
rates several more times this year, setting it far apart from
other developed nations and sending its currency to a
two-and-a-half year peak on the U.S. dollar.
Asian stocks had got little inspiration from Wall Street,
where the Dow and the S&P 500 both ended a
fraction lower. The Nasdaq extended its recent pullback
with a loss of 0.54 percent.
Yet the sluggishness of U.S. stocks contrasts with a sudden
revival in emerging markets, leading some to suspect that
stretched valuations on Wall Street are prompting fund managers
to go bargain hunting elsewhere.
The MSCI index of emerging shares has climbed for
six straight sessions to the highest in almost three months. The
index for Latin America on Thursday boasted its
biggest daily gain since July 2012 as Brazilian markets rallied.
TREASURIES IN DEMAND
In debt markets, a sale of U.S. seven-year Treasury paper
drew red hot demand, just as a five-year auction had on
Wednesday. Direct bidders, which include central banks, took a
record share of the sale, leaving dealers scrambling to cover
The demand for U.S. debt also showed up in the amount of
Treasuries that the Federal Reserve holds on behalf of foreign
central banks, which surged by a record $56 billion in the week
to Thursday, on top of a $32 billion jump the previous week.
The inflow almost entirely reversed a mysterious $104
billion drop three weeks ago that many had thought was due to
Russia pulling its money out of the U.S. to avoid possible
sanctions over Ukraine.
Whatever the source of the demand it has helped drag down
longer-term U.S. yields and contributed to a marked flattening
of the yield curve. The spread between five-year notes and
thirty-year bonds has shrunk to its smallest in five years.
The shift also reflects speculation that U.S. interest rates
will rise sooner than first thought and thus keep inflation well
contained below 2 percent.
The downward revision in the market's inflation expectations
might also be one reason gold has taken a turn for the worse in
recent sessions. On Friday, the metal was stuck at $1,292.56 an
ounce having lost 7 percent in nine sessions.
In the oil market, Brent eased 16 cents to $107.67 a barrel
, while U.S. crude futures edged up 4 cents to $101.32
(Editing by Shri Navaratnam)