* Stimulus withdrawal, economic recovery view pushes up core
* Indonesian rupiah lowest since 2009, Indian rupee slides
* Markets await minutes of Fed meeting on Wednesday
* European shares down, Wall Street seen flat
By Marc Jones
LONDON, Aug 19 Rising expectations the Federal
Reserve will soon scale back its stimulus drove German and U.S.
bond yields to multi-month highs on Monday and dealt a blow to
emerging markets, with India's rupee cartwheeling to historic
Wednesday's minutes from the last Fed meeting could offer
fresh hints on when the U.S. central bank will start winding
down its $85 billion-a-month support programme, a tricky process
markets have been nervous about for months.
German 10-year government bond yields rose 1.3
basis points to 1.89 percent, having hit their highest since
March 2012 at 1.924 percent at the open.
Their U.S. counterparts hit fresh two-year highs
of 2.871 percent, though the move was not tracked by the dollar,
which traded little changed against its currency basket.
"What you are seeing at the moment in a way is central
bankers versus the markets," said ABN Amro economist Nick
"The markets are pushing up the rate (increase) expectations
and central bankers have been trying to pour cold water on the
moves, but it is proving more difficult against a background of
stronger economic data."
The single currency area ended an 18-month recession last
quarter, growing 0.3 percent, and August business surveys this
week are likely to show the modest recovery is slowly broadening
As well as a further rise in the euro zone composite
purchasing managers' index (PMI), economists expect readings for
the area-wide service sector and for French manufacturing to
have punched through the no-change mark of 50 to show growth.
European shares have outperformed over the last two months
amid the brighter picture but at midday they were struggling.
Falls of 0.2 percent for London's FTSE and 0.2 and
0.5 percent for the DAX and CAC 40 in Frankfurt
and Paris pushed the FTSEurofirst 300 down 0.3 percent
and left world shares down 0.15 percent.
As rising core debt yields make it harder for developing
nations to fund widening current account deficits, emerging
markets - whose economies are heavily linked to U.S. fortunes
and the dollar - took a spill.
The Indian rupee slid as far as 62.73 per dollar,
emphatically breaching the previous low of 62.03. The country's
share market lost 1.4 percent, on top of a 4 percent
drubbing last Friday.
The country's central bank 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 wants 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.
Indonesia's rupiah shed 1 percent to four-year lows at
10,485 per dollar and the strain also showed in MSCI's
broadest index of Asia-Pacific shares outside Japan
which fell 0.5 percent.
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.
Wall Street was expected to open virtually unchanged later,
after the Dow Jones Industrial Average suffered its biggest
weekly fall of the year last week. <DJI >
In the currency market, the dollar gave up early, modest
gains to stand at $1.3361 per euro, little moved from
Friday. Against the yen it pulled up to 97.91, while the
dollar index was a shade softer at 81.213.
The dollar has been in gradual decline for the past few
weeks, in part on concerns the prospect of Fed tapering would
scare foreign investors out of U.S. bonds.
At some point yields should reach levels that are attractive
to investors, but Lee Hardman, a currency analyst at Bank of
Tokyo-Mitsubishi said for now the view on the currency was being
split between advanced and more vulnerable emerging economies.
"The rising U.S. yields are making the global financing
conditions more difficult, especially for countries which have
elevated current account deficits," he said
"We think gradually over time the dollar will begin to
outperform against the major currencies but at the moment it is
being offset by higher (bond) yields in Europe where markets
have been very much focused on the improving cyclical momentum."
Hopes for a pick-up in growth globally have also supported
commodities. Copper slid 0.7 percent to $7,359 a tonne after
hitting a 10-week peak of $7,420 on Friday, while gold
and platinum both edged down from two-month highs.
Brent crude inched up towards $111 a barrel as oil
markets remained focused on the violent unrest in Egypt which
has stoked fears for exports from other oil producers in the
Middle East and North Africa.