SYDNEY Japanese shares are set to open sharply lower on Friday after Wall Street took a fresh tumble in what is increasingly looking like a major portfolio shift from equities to bonds, emerging markets and, to a lesser extent, gold.
Still, other Asian markets should prove resilient, as they have done all week, given fund managers seem to be re-weighting in favor of emerging stocks as they trim their large exposure to momentum plays in the technology and biotechnology sectors.
The MSCI emerging markets index .MSCIEF touched its highest for the year so far on Thursday having climbed for three straight sessions.
Japan, however, is vulnerable both to the selloff in tech stocks and to the strength of the yen, which crimps exports and corporate profits. The opening was expected to be rough with Nikkei futures quoted at 14,070 compared to a close in the cash market of 14,300 on Thursday.
The Nikkei index .N225 is now threatening to break major chart support between 14,000 and 14,200, a zone that has held solid for the past six months.
Indeed, so important is this support area that dealers suspect it has been protected by buying from public pension funds in a form of semi-official intervention.
Many expect the same sort of bids to emerge on Friday as it would be crucial to prevent a close under 14,000, which would be taken as a very bearish event technically.
Still, it will be hard to hold given the extent of losses on Wall Street, where the Nasdaq suffered its worst single-day drop since 2011. The tech-heavy index .IXIC sank 3.1 percent, while the Nasdaq biotechnology index .NBI plunged 5.6 percent.
The selling rippled through the broader market pulling the Dow .DJI down 1.62 percent and the S&P 500 .SPX 2 percent.
With stocks out of favor government bonds were set to benefit and yields on the benchmark 10-year U.S. Treasury note fell to their lowest since February 27 at 2.62 percent.
Even Greece managed a triumphant return to the bond market just two years after its default placed it at the center of the euro zone debt crisis.
Greece drew solid demand at its five-year bond sale, which aimed to raise three billion euros and offered a yield of 4.95 percent, beating Athens' 5 percent target. It had been expected to draw in U.S. investors including hedge funds.
The afterglow from the Greek deal combined with the latest drop in U.S. yields helped the euro higher on the dollar. On Friday, the single currency was up at $1.3885 having rallied two full cents over the past four sessions.
The dollar also lost ground to the yen, falling to 101.40 from a high of 102.14 on Thursday. The dollar is now nearing major chart support around 101.20 that has held for much of the past three months and a breach would be bearish.
The dollar index also hit a three-week low of 79.330 .DXY, well below a seven-week high of 80.599 set only last week. It last stood at 79.407.
A drop in China's exports reported on Thursday stoked concerns about demand in the world's second-biggest economy and pushed the price of oil down toward $107 a barrel. OPEC also lowered its 2014 forecast for oil demand.
Brent crude fell 54 cents on Thursday to $107.44 a barrel, after gaining $2.16 over the previous two days. U.S. crude was quoted down 10 cents on Friday at $103.30 a barrel.
Gold hit a 2-1/2-week high as the dollar dropped. Spot gold was hovering at $1,318.41 an ounce, off a peak of $1,324.40.
(Editing by Shri Navaratnam)