* Asian stocks drop for 4th session, rests on key technical support
* Fed minutes on Wednesday could provide clues to policy outlook
* Dollar supported as yields on U.S. Treasuries around 2-year highs
By Saikat Chatterjee
HONG KONG, Aug 20 (Reuters) - Many Asian stocks slid on Tuesday, while yields on U.S. Treasuries held near two-year highs as investors positioned for the probability that the U.S. Federal Reserve will begin tapering stimulus as early as next month.
MSCI’s broadest index of Asia-Pacific shares outside Japan fell for the fourth consecutive session to 131.33 — its lowest level since July 9.
European markets were also looking weaker. Eurostoxx 50 futures were down 0.5 percent, DAX futures were down 0.6 percent, and CAC 40 futures were 0.6 percent lower.
Japan’s Nikkei led Asian stocks lower with the benchmark index down 2.7 percent, reflecting the exposure of many Japanese companies to India and Indonesia.
Indonesia and Indian shares had yet another torrid session with stock markets down 4 and 1 percent respectively.
Punching through the 200-day moving average, the MSCI-ex Japan broke a key technical support level, potentially signalling further declines for the index.
The eventual withdrawal of cheap money by Western central banks has been the dominant theme for Asia’s financial markets since late May, and emerging markets that have benefited from the Fed’s easy policy are now feeling the pinch.
The Indian rupee cratered to a record low of 63.30 per dollar on Monday, and Indonesia’s rupiah and Brazil’s real both skidded to four-year lows.
The rupiah’s pain was exacerbated by a 5 percent slide for local stocks after they logged a 5.6 percent tumble on Monday and traders said key support levels for currency could be broken soon.
Analysts noted that the dollar’s failure to rally broadly, despite sharp plunges in high-yielding currencies, suggested the market may already be positioning for a stimulus tapering.
The dollar was largely steady against a basket of major currencies as 10-year U.S. Treasury yields marched overnight to two-year highs, offsetting fears of the impact of Fed stimulus reduction.
Emering market volatility was also spurring demand for the yen, said Satoshi Okagawa, senior global markets analyst for Sumitomo Mitsui Banking Corporation in Singapore. “The yen tends to attract buying when tensions in the market increase,” he said.
Chinese shares have risen 7 percent so far this month, and that bounce may have further to run especially with the release of China’s HSBC flash PMI for August due on Thursday, which could confirm that the world’s second-largest economy is picking up from an early-year trough.
Chinese markets offer the best value on a 12-month forward price-to-earnings ratio compared to a 10-year median, according to Thomson Reuters data.
Bank of America Merrill Lynch analysts are overweight China, Japan, Korea, and Taiwan, and underweight Indonesia, the Philippines, Malaysia and Thailand, believing Asia-ex Japan offers attractive opportunities despite bearish investor positioning and interest.
In commodities, copper prices to $7,264.75 per tonne, while gold eased to $1,361.66 per ounce, after snapping a three-day winning streak on Monday and moving away from a two-month high hit that session.
Brent crude prices fell 0.5 percent to $109.36 a barrel, pressured by Fed fears but supported by the loss of Libya’s oil exports as well as concerns that continuing unrest in Egypt could spread and interfere with supply.