* Fed vows to buy $300 bln in long-dated U.S. Treasuries
* Dollar limps, still nursing big losses against euro
* JGBs gain, track rally in U.S. government bonds
By Rafael Nam
HONG KONG, March 19 (Reuters) - The U.S. dollar steadied on
Thursday after suffering its biggest daily plunge since 1985,
while Asian government bonds rallied on a large-scale plan by
the Federal Reserve to buy long-dated U.S. Treasuries, reviving
a practice not used in decades.
Banks once again led Asian stocks higher on hopes for an
improvement in the global financial sector and European
equities opened higher after two sessions in a row of losses.
The Fed surprised investors on Wednesday by announcing it
would buy $300 billion in U.S. Treasuries -- its first sizeable
purchases of the debt since the early 1960s.
These efforts are part of Fed's intention to inject an
additional $1 trillion into the ailing U.S. economy by also
purchasing more U.S. mortgage and agency debt.
But analysts said the sharp expansion of the Fed's balance
sheet could spew dollars into global markets and lead to an
oversupply of the world's main reserve currency.
The actions also sparked concerns other central banks would
follow suit, 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.
"Soon the entire G7 might have near-zero rates and have
implemented quantitative easing in some shape or form, which
makes it hard to pick a currency winner," RBS analysts said in
a note to clients.
"Even so, the backlash against the U.S. dollar could last
for some days and the downward pressure on the U.S. dollar will
intensify if quantitative easing sustains the recovery in
equities."
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 lower credit costs
for consumers and businesses.
The dollar index <.DXY>, a gauge of its performance against
a basket of major currencies, rose 0.2 percent to 84.324. But
that came after a 3 percent slide on Wednesday that was its
biggest one-day drop since 1985.
The euro initially extended its gains, hitting a two-month
high of $1.3536 on trading platform EBS, after jumping 3.8
percent on Wednesday for its biggest one-day rise since its
launch in 1999, according to Reuters data.
But the euro later trimmed its gains and was down 0.1
percent from late U.S. trading on Wednesday at $1.3462 <EUR=>.
Analysts still expect the dollar to be hit, however.
"I think the dollar will continue to be sold across the
board for the time being, over the next week or so," said
Motonari Ogawa, a director at Barclays Bank in Tokyo.
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.
The yield on the benchmark 10-year note <US10YT=RR>
collapsed as far as 2.49 percent on Wednesday from just above
3.00 percent the day before, and was holding at 2.544 percent
in Asian trade.
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.
June futures jumped 0.72 point on the day to 139.57
<2JGBv1>, while the benchmark 10-year yield fell 4.5 basis
points to a three-week low of 1.255 percent.
Asia-Pacific stocks rallied, 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 and the prospects that an improved U.S. economy would
bolster global trade.
The MSCI Asia-Pacific stocks outside Japan <.MIAPJ0000PUS>
climbed 1.7 percent after earlier hitting their highest level
since mid-February, though the Nikkei average lost 0.3 percent.
Gold <XAU=> was trading at $931.95 per ounce, succumbing to
profit-taking from New York's notional close of $940.00 on
Wednesday.
Prices for the yellow metal had surged in the previous
session on concerns about the potential inflationary effects
from the Fed's efforts.
Oil <CLc1> reversed earlier losses, to gain 81 cents to
$48.95 a barrel.
