Asia shares win reprieve as dollar rally, bond rout pause
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An employee of a foreign exchange trading company is reflected in a monitor displaying the Japanese yen's exchange rate against the U.S. dollar in Tokyo, Japan, November 9, 2016. REUTERS/Toru Hanai/File Photo
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By Hideyuki Sano
TOKYO (Reuters) - A pause in both the sell-off in global bonds and sharp rise in the dollar following Donald Trump's election victory, together with Wall Street's record high overnight helped Asian shares steady on Wednesday.
U.S. President-elect Trump's plans to cut taxes and boost infrastructure spending would boost demand while his proposals to deport illegal immigrants and impose tariffs on cheap imports, if implemented, are seen likely to drive inflation higher.
That prospect has given rise to expectations that U.S. interest rates will rise faster than earlier anticipated, making the dollar stronger, but investors are still trying to assess what opportunities a Trump presidency will bring.
"The markets are having a bit of a pause at the moment. But people still want to do more of this trade," said Yoshinori Shigemi, global market strategist at JPMorgan Asset Management in Tokyo.
"If you look at the U.S. markets, investors are looking at coming infrastructure spending and so on and they are rotating to stocks from bonds."
MSCI's broadest index of Asia-Pacific shares outside Japan <.MIAPJ0000PUS> rose 0.6 percent, bouncing back from a four-month low touched earlier this week.
European shares are expected to rise as well, with spread-betters expecting Britain's FTSE <.FTSE>, Germany's DAX <.GDAXI> and France's CAC <.FCHI> opening up about one percent.
The dollar's strength has fanned fears investors could shift funds to the United States from emerging markets.
Emerging market stocks <.MSCIEF>, which had fallen 7 percent over the four sessions until Monday, also extended gains for a second day on Wednesday.
Japan's Nikkei <.N225> rose 1.1 percent to nine-month high on Wednesday, thanks to the dollar's strength against the yen.
The dollar was trading at 109.08 yen
On Wall Street, the Dow Jones industrial average <.DJI> rose 0.29 percent to a record high while the S&P 500 <.SPX> gained 0.75 percent.
Since Trump's unexpected victory last week, U.S. shares have rallied while U.S. bond prices tumbled, pushing up their yields sharply.
The yield on 10-year U.S. Treasuries
U.S. retail sales rose more than expected in October, pointing to sustained economic strength that could allow the Federal Reserve to raise interest rates next month.
U.S. interest rate futures <0#FF:> are pricing in an 85 percent chance of a rate hike, compared to 75 percent before the election.
The two-year U.S. notes yield fell to 0.989 percent
Nikko SMBC Securities estimates U.S. two-year notes are currently pricing in five Fed rate hikes in the next two years, said senior strategist Makoto Noji.
"If we base our assumption on (Fed Chair Janet) Yellen's gradualist approach, which can be roughly translated as two rate hikes per year, we could say that the market has already priced in tightening they could reasonably imagine at this point," Noji said.
"But of course if Trump's policies stoke inflation that cannot be contained by two rate hikes per year, the U.S. bond market could see big moves again," he added.
Sharp gains in U.S. bond yields have drawn investors to the dollar, and its index against a basket of six major currencies <.DXY> <=USD> hit its highest level in almost a year on Tuesday.
It slipped slightly in Asia on Wednesday to 99.973, but was still just 0.5 percent away from reaching its highest level in more than 13-1/2 years.
The Chinese yuan
In contrast, oil prices extended gains, shrugging off an industry report that showed an unexpected build in U.S. crude stocks, and adding to gains of nearly 6 percent from the previous session.
Oil prices had surged on Tuesday as members of he Organization of the Petroleum Exporting Countries (OPEC) were set to renew efforts on concrete steps to implement a deal on cutting output in the face of a persistent global glut.
Elsewhere, iron ore futures in China
(Reporting by Hideyuki Sano; Editing by Simon Cameron-Moore)
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