* Dollar index at highest level since mid-Sept, short-term
U.S. yields surge
* Stocks supported by strong U.S. GDP data
* Fed says in no rush to raise rates but upgrades view on
* Argentine on brink of default again but no major fallout
expected this time
By Hideyuki Sano
TOKYO, July 31 The dollar stayed strong and U.S.
bond yields held firm on Thursday after data showed solid U.S.
economic growth, even as the Federal Reserve repeated its
message that it is in no hurry to raise interest rates.
While the prospect of a solid U.S. recovery underpinned
equities, many Asian shares slipped on profit-taking after
making hefty gains since the middle of this month.
MSCI's broadest index of Asia-Pacific shares outside Japan
dipped 0.3 percent but held still not far from 6 1/2-year high
hit on Wednesday.
The Nikkei average rose 0.3 percent while Australian
shares inched up to hit six-year highs.
European shares are expected to open slightly firmer, with
France's CAC40 seen rising up to 0.3 percent and
Britain's FTSE 0.1 percent.
U.S. April-June gross domestic product expanded at a 4.0
percent annualised rate as activity picked up broadly, while the
reading for the first quarter was revised up to a contraction of
2.1 percent from an earlier estimate of a 2.9 percent drop.
"The data led markets to think that there's no need to be
pessimistic about the U.S. economy," said Makoto Noji, senior
strategist at SMBC Nikko Securities.
The GDP data increased expectations that the Fed is moving
closer to an interest rate hike that many expect will occur next
year if the economy continues to gain momentum.
The 10-year U.S. debt yield jumped to as high as 2.569
percent, posting its biggest daily rise since
November. It last stood at 2.55 percent.
Two- and three-year note yields rose to their highest in
The U.S. dollar index rose above two of its recent peaks -
one hit in January and the other in November - to its highest
level in almost 11 months. The index rose to as high as 81.545
on Wednesday and last stood at 81.387, having
risen 2.0 percent this month.
The U.S. currency broke above its long-held range against
the yen to hit a four-month high of 103.15 yen on Wednesday. It
last stood at 102.76 yen.
The euro also fell to eight-month low of $1.3366 and last
RISK OF DEFLATION
As widely expected, the U.S. Federal Reserve cut its monthly
asset purchases to $25 billion from $35 billion, leaving it on
course to end the programme this autumn. ]
While the Fed also reiterated its concerns over slack in the
labour market, it upgraded its assessment of the U.S. economy
and expressed some comfort that inflation was moving toward its
That stood in contrast with the euro zone, where data showed
on Wednesday Spanish consumer prices fell 0.3 percent in July,
faster than an expected 0.1 percent fall, keeping pressure on
the European Central Bank to adopt full-scale quantitative
As signs of disinflation mounted, euro zone bond yields kept
falling, with Italian and Spanish 10-year debt yields both
hitting record lows of 2.625 percent and 2.451
In addition, there are concerns that the euro zone economy
may be hit by a loss of trade with Russia after the European
Union and the United States imposed further economic sanctions
Oil prices eased, with U.S. crude futures hovering at
$99.60 per barrel, near a 2 1/2-month low of $99.01 hit in
mid-July, pressured by excess supplies in Europe and Asia
despite continued hostilities in Gaza and Ukraine.
Elsewhere, Argentine looked set to default on its debt
within hours after it failed to strike a deal with holdout
But the broader global impact of any default is likely to be
limited because Argentina has been effectively shut out of
financial markets since its devastating debt default in 2002.
(Editing by Eric Meijer & Kim Coghill)