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* Fed vows to buy $300 bln in long-dated U.S. Treasuries
* Dollar steadies, still nursing big losses against euro
* JGBs gain tracking rally in U.S. government bonds
* Asian stocks hit 5-wk high; gold succumbs to
profit-taking
(Adds quotes, details, updates prices)
By Rafael Nam
HONG KONG, March 19 (Reuters) - The U.S. dollar nursed big
losses on Thursday and Asian government bonds rallied after the
Federal Reserve vowed to buy long-dated U.S. Treasuries,
reviving a practice not used in decades to revive an ailing
economy.
The Fed surprised investors on Wednesday by announcing it
would buy $300 billion worth of these U.S. Treasuries for the
first time since the early 1960s as part of a move to inject an
additional $1 trillion into the U.S. economy by also purchasing
more U.S. morgage and agency debt. []
The move sent Asian stocks a five-week high, as bank shares
helped extend a recent rally, and on broader investor optimism
that a stronger U.S. economy will help the continent's
export-dependent economies.
But analysts were also warning of the risks to the Fed's
quantitative easing. Gold <XAU=> fell on profit-taking after
surging the previous session on concerns about the potential
inflationary effects from the Fed's efforts, even if the
near-term concern is deflation.
The move to expand the Fed's balance sheet is also sparking
doubts about the dollar's status as the world's reserve
currency, and concerns that it will be followed by similar
moves from other central banks, creating a domino effect of
weakening currencies.
Central banks in Britain and Japan have already announced
they would purchase their respective government debt, while the
Swiss National Bank last week said outright it would sell
francs to weaken its currency.
"With the Fed now effectively undermining the dollar, the
worry is that central banks are playing competitive
devaluations," said Tony Morriss, senior rates strategist at
ANZ. "The Fed won't say it outright, but they would likely
welcome a weaker currency."
The announcement -- following a policy meeting that kept
U.S. interest rates at nearly zero -- effectively seeks to
print money to revive an economy in a practice known as
quantitative easing.
The move to purchase longer-dated U.S. government debt, on
top of regular purchases of short-term Treasury bills, is
intended to feed into the U.S. economy via a lower array of
credit costs for consumers and businesses.
The euro climbed as high as $1.3536 against the dollar on
trading platform EBS, marking the highest since early January,
but later shed its gains and was down 0.2 percent at $1.3444
<EUR=> from late U.S. trading on Wednesday
That followed the euro's 3.9 percent jump against the
dollar on Wednesday according to Reuters data, its biggest
one-day percentage gain since the launch of the single currency
in 1999.
The dollar initially dipped against the yen, but later
rebounded, rising 0.2 percent to 96.40 yen <JPY=> after
dropping nearly 3 percent against the Japanese currency on
Wednesday.
"The dollar was taken to the woodshed and beaten like a
dog," said David Watt, senior currency strategist at RBC
Capital Markets. "And after a short rest, beaten like a dog
again. Market sentiment on the Fed's manoeuvre was crystal
clear."
In bond markets, U.S. Treasury yields remained sharply
lower in Asia on Thursday, after plunging in the previous
session by the most since the day after the U.S. stock market
crash in 1987.
Yields on the 10-year note <US10YT=RR> were down at 2.56
percent, having collapsed from 3.01 percent just before the
Fed's announcement.
In Japan, government bonds also gained, pushing yields down
across most of the curve. The country's central bank had said
on Wednesday it would increase its buying of government bonds
by nearly a third to help cushion the economy.
JGB June futures jumped to a more than two-week high of
139.46 before easing to be up 0.50 point on the day at 139.35.
<2JGBv1>.
The benchmark 10-year yield fell 2.5 basis points to 1.275
percent after hitting as low as 1.265 percent, the lowest since
March 2.
Asia-Pacific stocks rallied as well, led by banks such as
Woori Finance Holdings <053000.KS> and Commonwealth Bank of
Australia <CBA.AX> amid hopes of an improvement in the global
financial system.
The MSCI Asia-Pacific stocks outside Japan <.MIAPJ0000PUS>
climbed 2.1 percent as of 0408 GMT to their highest level since
mid-February, though the Nikkei average <> lost 0.3
percent.
Gold was trading at $928.50 per ounce at 0408 GMT after
earlier sinking to a low of $925 per ounce from New York's
notional close of $940.00 on Wednesday.
Oil <CLc1> reversed earlier losses, to gain more than $1 to
$49.19 a barrel.
