* MSCI Asia-Pacific little changed
* Euro wobbly after setting 5-month low
* Italian markets jolted by 5-Star, League coalition proposals
* U.S. 10-year debt yield near 7-year highs
By Masayuki Kitano
SINGAPORE, May 17 (Reuters) - Asian shares held steady on Thursday, while the euro struggled near five-month lows set a day earlier following a report that Italian populist parties trying to form a coalition could ask the European Central Bank to forgive 250 billion euros of debt.
In equity markets, MSCI’s broadest index of Asia-Pacific shares outside Japan was little changed, while Japan’s Nikkei gained 0.4 percent and South Korea’s KOSPI rose 0.4 percent.
Worries about political risks had jolted Italian markets and pressured the euro following reports that Italy’s anti-establishment 5-Star Movement and anti-immigrant League may ask the European Central Bank to forgive 250 billion euros of debt as the parties worked to draft a coalition programme.
The two populist parties have held six days of talks aimed at putting together a coalition government and ending 10 weeks of stalemate following an inconclusive election on March 4.
The common currency edged up 0.l percent to $1.1814 in early Asian trade, after having set a five-month low of $1.1763 on Wednesday.
Italian stocks tumbled 2.3 percent while Italy’s 10-year bond yield jumped nearly 19 basis points to 2.13 percent .
Wall Street’s main stock indexes rose on Wednesday, with the S&P 500 gaining 0.4 percent, while the Russell 2000 small-cap benchmark set a record high.
U.S. equities advanced on Wednesday even as a rise in U.S. 10-year Treasury yields to their highest levels in nearly seven years suggested more competition for equities.
Yields on 10-year U.S. Treasuries hit 3.10 percent on Wednesday for the first time since July 2011, continuing to weigh on stocks as investors consider whether U.S. government bonds pose a more attractive option to riskier equities.
Wednesday’s yield increase followed Tuesday’s bond market selloff spurred by data showing a solid rise in retail sales that suggested the U.S. economy is on a stronger footing in the second quarter.
The U.S. 10-year Treasury yield rose to as high as 3.104 percent in early Asian trade on Thursday, matching the near seven-year high set on Wednesday.
The rises in U.S. bond yields have helped buoy the dollar, which has gained 1.6 percent against a basket of six major currencies so far in May.
“If the market continues to trade off U.S. yields and diverging economic data between the U.S. and EU, it’s hard to argue against the current direction in yields or the dollar,” Stephen Innes, head of trading in Asia-Pacific for Oanda in Singapore, said in a note.
“On the U.S. economic data front, the consumer remains the economy’s backbone, and if this robust trend in the retail space continues to build, factor in a bit of wage growth pressure and the U.S. dollar will continue to move higher on the back of higher yields,” Innes added.
The dollar index last stood at 93.282. On Wednesday it had touched a five-month high of 93.632.
Oil prices gained on Wednesday, shaking off the effects of a strengthening dollar, after an inventory report showed U.S. crude and gasoline stocks fell more than expected.
Brent crude futures gained 85 cents to settle at $79.28 a barrel on Wednesday.
Reporting by Masayuki Kitano; Editing by Simon Cameron-Moore