(Corrects to specify Nikkei is near 7-month high, not yen)
By Kim Coghill
* U.S. bond yields extend surge on deficit worries
* Dollar rises versus yen, Nikkei gains almost 1 pct
* Most Asian stocks fall, U.S. rate spike adds uncertainty
* Gold falls from fresh record peak, oil also down
By Daniel Magnowski
SINGAPORE, Dec 8 (Reuters) - U.S. government bonds
extended sharp losses on Wednesday, pushing the dollar higher
against the yen and the euro while sending most other
investors fleeing to the sidelines.
U.S. Treasuries prices plunged on Tuesday and yields
surged after President Obama proposed a deal to extend tax
cuts that would support economic growth but raise national
debt levels in the longer term.
The yield on 10-year Treasuries rose more than 4 basis
points from overnight U.S. levels in early Asian trade to
around 3.188 percent , its highest since late June.
"In the short run this is good news, but two or three
years down the road foreign buyers of U.S. Treasuries may
start to balk," said David Carter, chief investment officer at
Lenox Advisers in New York.
The move in Treasuries made the dollar more attractive to
investors looking for higher yields, pushing it up against the
yen, the euro and most emerging Asia currencies. The dollar
index against a basket of major currencies was up 0.4
percent.
The weaker yen gave the Japanese stock market a boost. The
benchmark Nikkei average hit its highest in almost
seven months, reversing Tuesday's move to rise more than 1
percent.
Major exporters such as Sony Corp and Hitachi
Construction were among the biggest gainers, both
adding more than 1 percent in early trade. A weaker domestic
currency helps exporters who are paid in foreign currency.
The selloff in Treasuries and the Nikkei's rise spurred
further losses in Japanese government bonds after the previous
day's weak 30-year debt auction. The yield on 10-year JGBs
rose to its highest since June.
"A further rise (in Treasuries) would put pressure on some
of the higher correlated bond markets in Asia such as
Singapore, Hong Kong and Thailand which have seen yields
rising in recent weeks due to inflationary pressures and year
end profit taking," said Kenneth Akintewe, a fund manager at
Aberdeen Asset Management who helps manage $5 billion in Asian
fixed income assets.
"Still, inflows into the region are very strong ... which
would mean any sharp selloff would be temporary and offer
attractive entry points."
Other Asian stock markets stumbled as the suddenness and
size of the U.S. bond selloff added to uncertainty heading
into year-end.
South Korean stocks and the won fell
briefly on a report North Korea had fired an artillery round,
but partially recovered when it emerged it was a military
exercise, while weak resources stocks dragged Hong Kong stocks
down around 0.6 percent.
The MSCI Asia index excluding Japan was
down 0.7 percent, but with a year-to-date gain of around 12
percent was still well ahead of the main MSCI world index.
Asia has been one of the chief beneficiaries of flows of
capital from the United States, where the Federal Reserve is
pursuing a policy of printing more cash.
The euro fell to $1.322, wiping out Tuesday's
gains, and is expected to remain under pressure given
persistent concerns about high debt levels in the single
currency zone.
"It's becoming increasingly clear the U.S. Is taking a
very different approach to the Europeans in dealing with their
debt overhang ... they're reflating their way out of it amd
the Europeans are going the opposite way," said Grant Turley,
strategist at ANZ.
Gold , which has gained almost one-third since the
start of the year, traded at $1,400 per ounce, down from its
most recent record high of over $1,430.
The precious metal's fall is expected to be temporary, as
it is firmly supported by its traditional appeal as a 'safe
haven' in contrast to the euro and the dollar, which are
undermined by worries about debt levels, and the prospect of
the U.S. central bank printing cash respectively.
The stronger dollar dragged down other dollar-denominated
commodities.
U.S. crude oil futures <CLc1> fell for the second day in a
row, losing nearly a dollar to $87.76 per barrel, while
benchmark industrial metal copper slid almost 1
percent to $8,817 per tonne after hitting a fresh peak of
$9,044 on Tuesday.
(Additional reporting by Hideyuki Sano in Tokyo and Ian
Chua in Sydney)
(Editing by Kim Coghill)
