* In wake of Fed, Bank of Japan seen cutting rates on
Friday
* U.S. bond yields rise from record lows, JGB yields sink
* Automaker stocks fall with industry woes deepening
(Corrects Nikkei closing to up 0.5 percent, not down 0.5
percent in paragraph 5)
By Kevin Plumberg
HONG KONG, Dec 17 (Reuters) - The U.S. dollar dropped to an
11-week low and government bonds rose on Wednesday after the
Federal Reserve slashed rates, paving the way for Asian
policymakers to take more aggressive steps to support growth.
Regional stocks rose, supported by sectors sensitive to
interest rates but shares of car manufacturers were under fire
as hopes of an imminent U.S. auto industry bailout faded and
Japan's Honda Motor Corp <7267.T> cut its profit forecast for
the third time in five months. []
European stock futures pointed to a higher open <STXEc1>,
while Wall Street <SPc2> was set to start the day a bit lower
after gaining in the wake of the Fed decision.
U.S. Treasuries dipped after a steep rally overnight, but
Japanese government bonds rose, pushing down the 2-year yield
to the lowest since February 2006, on growing speculation the
Bank of Japan would cut the overnight cash rate from its
current low level of 0.3 percent as early as Friday.
[]
"This opens the door for more rate cuts in Asia. Everyone
is now looking at the Bank of Japan, which may feel compelled
to cut rates for some symbolic gesture," said David Cohen,
director of Asian economic forecasting with Action Economics in
Singapore.
Prospects for lower borrowing costs helped to lift the MSCI
index of stocks in the Asia-Pacific region outside Japan
<.MIAPJ0000PUS> to the highest since Nov. 11, up 2.3 percent on
the day and extending its gains this month to 10.2 percent.
Japan's Nikkei share average <> finished 0.5 percent
firmer.
Hong Kong's Hang Seng index <> climbed 1.5 percent,
boosted by property-related stocks such as Sun Hung Kai
Properties <0016.HK> on hopes for lower borrowing costs.
In an all-out battle to protect the U.S. economy from
profit-evaporating deflation, the Fed cut its base rate to a
range of zero to 0.25 percent, said it would take steps to make
sure benchmark rates remain low for some time and keep its
balance sheet loaded with debt. []
DOLLAR'S FORTUNES TURN
The prospect of effectively littering the financial system
with dollars kept the U.S. currency struggling. The rally it
enjoyed earlier this month on the back of U.S. investor capital
flows back home has clearly faded.
"People are getting a little concerned with the whole idea
of quantitative easing. To the extent that means simply
throwing more dollars on to the market, then that implies a
weakness in the currency," said Dwyfor Evans, currency
strategist with State Street Global Markets in Hong Kong.
The euro hit a high near $1.42 <EUR=> before settling back
to $1.4060. So far this month, the euro has strengthened by
around 14 cents as dealers close out bets on the dollar as the
year-end approaches.
The dollar fell 0.3 percent against the yen compared to
late U.S. trading to 88.70 yen <JPY=>, creeping back down
toward a 13-year low of 88.10 yen hit late last week.
Commodities were boosted by a weaker dollar, with copper
futures edging higher and oil <CLc1> rising to above $44 a
barrel on expectations OPEC will cut supplies further.
BOND YIELDS STAY LOW
Data reflecting a worsening global economic recession have
kept demand for government bonds high, especially heading into
the year-end. However, expectations that other central banks
will follow the Fed's lead and aggressively cut rates as well
as pour liquidity into particular areas desperate for cash has
increased hunger for government paper.
The benchmark 10-year Japanese government bond yield
<JP10YTN=JBTC> dropped to the lowest since mid-April at 1.29
percent. The 2-year yield dropped to the lowest since February
2006, though a rise in the 2-year U.S. Treasury yield increased
its advantage over Japan to 24 basis points. On Tuesday, the
spread was the lowest since 1992, according to Reuters data.
U.S. Treasuries sold off in Asia, but only after yields hit
record lows overnight in the wake of the Fed's actions.
The 10-year note <US10YT=RR> yield edged up to 2.27 percent
after hitting 2.26 percent on Tuesday, the lowest since 1951,
according to Global Financial Data. The yields on 2-year and
30-year U.S. paper fell to record lows.
Given the moves in U.S. yields, some investors were moving
back to the short end of the yield curve from longer maturities
and becoming more interested in investment grade corporate
debt.
"Corporations are susceptible to both a credit crunch and
an economic downturn, but should perform well if and when
economic catastrophe is avoided and as trading volumes
gradually improve," said Mike Zelouf, product specialist at
Western Asset Management, a part of Legg Mason.
(Editing by Lincoln Feast)
