* Fed minutes lift Treasury yields, strengthening dollar
* Emerging currencies and shares hit by foreign flight
* Upbeat China and German data spur share gains in Europe
* Industrial commodities bounce from lows
By Richard Hubbard
LONDON, Aug 22 The rout in emerging markets
gathered pace on Thursday after a sharp spike in U.S. debt
yields lifted borrowing costs globally, and upbeat business
reports from China and Europe encouraged a shift into more
Purchasing managers surveys from the euro zone and for
China's vast manufacturing sector revealed a world economy
gathering momentum which also supported industrial commodities
and kept Brent oil at $110 a barrel.
But the main driver of markets were the minutes from the
last U.S. Federal Reserve policy meeting, which left unchanged
expectations that the central bank would being to taper its
asset-buying programme as early as next month.
The 10-year Treasury note yield jumped to a two-year high of
2.936 percent, making the dollar more attractive. It
rose against an index of major currencies by 0.5 percent
and gained 1.0 percent on the yen.
"It looks as if the minutes have done little to push back
on market expectations for a Fed tapering," said Ian Stannard,
head of European foreign exchange strategy at Morgan Stanley.
With capital on the move and business surveys showing a
further pickup in activity in the euro zone, European shares
snapped a three-day losing streak to rise 0.9 percent,
their second- biggest percentage gain of the month.
U.S. stock index futures also pointed to gains ahead on Wall
Street, while MSCI's broadest index of emerging market stocks
was on course for a seventh day of losses, bringing
its falls this week to over 4 percent.
Emerging currencies, especially from nations relying heavily
on cheap dollars to fund large current account deficits, were
hit hard. Those of India and Turkey set fresh
record lows, while in Indonesia, Malaysia and Thailand
currencies sank to multi-year lows.
Share markets across Asia outside Japan
dropped 1.1 percent to reach a six-week low. MSCI's global
equity index, which tracks shares in 45
countries worldwide, was virtually flat but near six-week lows
as the gains in Europe helped the selling elsewhere.
"The outflows (from emerging markets) that are being seen
now are really getting very noticeable," said Andrew Milligan,
head of global strategy at Standard Life Investments.
Milligan said investors were reacting to both higher U.S.
bond yields and a deceleration in Chinese growth, which have
combined to force countries like Turkey, Indonesia and Brazil to
raise rates while their economies were struggling.
The darkening picture for some emerging markets was in sharp
contrast to that painted by surveys of business activity across
the euro zone and China in August, released on Thursday, which
pointed to renewed growth in the world economy.
Markit's Flash Composite Purchasing Managers' Index (PMI)
for the 17-nation euro area bounced to 51.7, from last month's
50.5. It marked its best level since June 2011, led by strength
in Germany and pointing to a 0.2-0.3 percent growth rate for the
currency bloc in the current quarter.
"If the euro zone is picking up then that bodes well for the
global economy," said Chris Williamson, Markit's chief
A sister survey from China rose to a four-month high of 50.1
from July's 47.7, just passing the watershed 50 line that
signals an expansion in business activity rather than a
Figures later in the day are similarly expected to confirm a
continued strengthening of U.S. factory output, adding weight to
expectations the Fed would start cutting back its immense bond
purchase programme next month.
The euro hit $1.3360 after the euro zone PMI data was
released, while a selloff in safe-haven German government bonds
sent yields to their highest since March 2012. Germany's
benchmark DAX share index traded up 0.9 percent.
However, the data was not enough to lift lower-rated euro
zone government debt, which fell along with riskier assets in
The China data though gave industrial commodities a boost,
with copper jumping 2.0 percent to $7,384 a tonne. Gold,
bothered more by the risk of Fed tapering and rising bond
yields, backtracked down to $1,367 an ounce.
Brent crude edged up to around $110 a barrel on hopes for
better demand as the global economy recovers, though signs that
OPEC producer Libya may resume exports dragged on prices. U.S.
crude oil futures were up 47 cents to $104.32 a barrel.