* Japan, Australia shares weaken on profit taking
* Seoul recovers sharply, shipbuilders rally
* U.S. Treasury yields drop on safe haven bids, USD slips
By Saikat Chatterjee
HONG KONG, Feb 18 (Reuters) - Asian stocks are set to finish
their best week in two months on Friday as fading concerns over
inflation encouraged investors to hunt for value in beaten down
markets within the region.
In the currency markets, the Swiss franc a
safe-haven, held near two-week highs versus the dollar and euro
as unrest spread across the Middle East and North Africa.
Indonesian and Indian stocks , which were
pummelled last month, saw some bargain-buying this week, while
Japanese and Australian shares succumbed to a
bout of profit-taking after posting solid gains.
Seoul recovered smartly after dropping nearly 2
percent in the past three sessions due to a rally in
shipbuilders including Daewoo Shipbuilding .
.
The MSCI's index of Asia Pacific shares outside Japan
rose by more than 1 percent, extending its
weekly gains to nearly 3 percent, its best week since December.
Regional stocks hit a two-month low last Friday.
The region's shares and bonds sold off heavily last month as
investors fled to the relative safety of developed U.S. and
Japanese markets because of inflation concerns, but there are
signs that the sell-off may be drawing to a close.
Asia equity ETF redemptions slowed to just $55 million last
week after averaging $369 million in the previous three weeks,
while local buying in India was the biggest since late 2009,
data from Trim Tabs Investment Research showed.
Japan has been the best performing market in Asia so far
this year, having gained some 6 percent, making it ripe for some
profit-taking.
"It's an obvious breather after the market has gained so
much recently," said Takashi Hiroki, chief strategist at Monex
Inc.
"The time for such a break is perfect, because investors
want to re-adjust their positions according to what happens in
the Middle East, with the G20 summit and after a longer market
break in the U.S.," he said.
In the emerging markets space, halfway through the first
quarter of 2011, India, Philippines and South Africa have led
the losers, according to Thomson Reuters data.
TREASURIES UP
Safe haven buying lifted U.S. Treasuries, with the 10-year
benchmark yield falling to 3.59 percent, below a
10-month peak of 3.77 percent marked last week. .
This week's drop has also calmed concerns that a relentless
rise in U.S. yields would narrow the yield differentials with
emerging market bonds and trigger further selling.
Ten-year yields are up by 120 basis points since October.
Foreigners have resumed buying Indonesian local debt after
heavy selling last month as the central bank's rate rise offered
some reassurance about its inflation fighting credentials.
As a result, net foreign ownership climbed to a new record
and sent the rupiah soaring to a 3-1/2 year high.
Softer Treasury yields have also weighed on the U.S. dollar.
Asian currencies received a leg up from China's move to
guide the yuan to a record high before this weekend's
G20 meeting.
U.S. crude futures for March delivery were trading
above the $86 per barrel mark while ICE Brent crude for April
delivery were trading around $103 levels. .
Gold looked set to build on this week's hefty gains
above the 1380 an ounce line.
(Additional reporting by Kevin Plumberg and Antoni Slodkowski
in TOKYO; Editing by Alex Richardson)
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