* Emerging FX, Australia dollar weaken; yen firms
* Bonds in demand with investors, sick of cash, chasing
yield
* Stocks edge higher but investors wary of correction
* Energy, consumer discretionary shares still popular
* Balance of economic data shifting to negative from
positive
By Kevin Plumberg
HONG KONG, May 20 (Reuters) - The Australian dollar and
emerging market currencies slid on Wednesday as investors began
to question how much longer a near three-month rally in riskier
assets can last without evidence of a sustained economic
recovery.
Hunger for higher yields kept regional bonds in demand,
however, while worries about tight summer supplies pushed crude
oil prices to fresh six-month highs above $60 a barrel.
Asian stock markets were choppy but mostly edged higher,
with investors reluctant to abandon cyclical shares, though
they trimmed holdings in the financial and materials sectors
after reports showed U.S. housing starts at a record low and
the worst-ever contraction in Japan's economy in the first
quarter.
Major European stock markets were expected to open as much
as 0.6 percent lower, discouraged by the grim Japanese data and
after Hewlett-Packard Co <HPQ.N> cut 2 percent of its workforce
and offered a disappointing revenue outlook.
A key gauge of Australian consumer sentiment in May also
tumbled despite rallying equity markets, paving the way for
dealers to take some profits on the Australian dollar's rise on
Tuesday after it earlier hit a seven-month high.
[]
"Risk appetite has held the upper-hand of late but an
emerging negative balance of recent economic data should be
injecting some caution," said Patrick Bennett, Asia FX and
rates strategist with Societe Generale in Hong Kong, in a note.
Japan's Nikkei share average <> edged up 0.6 percent
despite the bleak economic report, with shares of
pharmaceutical companies and trading houses gaining.
Japan's gross domestic product contracted 4 percent on a
quarterly basis as exports, domestic demand and investment
buckled, roughly in line with expectations.
The outlook was uncertain, with some economists expecting
stimulus spending to hasten a recovery, while others were
concerned that collapsed exports would continue to inhibit
already weak domestic demand. []
"The Japanese economy may return to growth temporarily but
it could suffer a contraction again afterwards," said Hiroshi
Shirashi, an economist with BNP Paribas.
The MSCI index of Asia Pacific stocks outside Japan
<.MIAPJ0000PUS> was nearly unchanged, after hitting the highest
since October 6 on Tuesday.
The index is still up more than 50 percent from lows in
early March, but like other global benchmarks appeared to have
lost steam in recent sessions on fears markets have risen too
far, too quickly without concrete signs of economic recovery.
Hong Kong's Hang Seng index <> slipped 0.4 percent,
with property stocks under fire, though the sub-index <.HSCE>
of mainland companies listed in Hong Kong edged up 0.2 percent.
BEIJING'S DEEP WALLET
Optimistic investors hope Beijing can essentially spend its
way to a recovery, which will then spill over to the rest of
the region. To jump start consumer spending, the government
said on Tuesday it would increase a subsidy scheme to 5 billion
yuan ($733 million) from 1 billion yuan to encourage purchases
of automobiles and home appliances. []
It was not clear if this was new spending.
Those hopes had also inspired buying of the Australian
dollar and emerging Asian currencies. However, dealers were
cutting their exposure to those currencies and buying back U.S.
dollars and yen on Wednesday.
The Australian dollar fell 0.4 percent on the day <AUD=>,
at around US$0.7700 after earlier rising to a seven-month high
of US$0.7784. A Westpac-Melbourne Institute survey of consumer
sentiment fell 4.3 percent, after opinions soured about a
national budget chock full of debt. []
The Aussie dollar and currencies of other major commodity
exporting countries had been buoyed of late by hopes that
economic recovery was near and demand for raw materials would
recover.
The U.S. dollar strengthened broadly against regional
currencies, rising 0.6 percent against the South Korean won
<KRW=> and 0.7 percent against the Phillipine peso <PHP=>.
But the dollar slid 0.4 percent against the yen to 95.60
yen <JPY=>, having carved out a range of about 94.50 to 101.00
in the last three months.
Emerging market bonds, however, fared better than their
currencies, thanks to verbal committments by some central
bankers to keep their interest rates low for a while and
pent-up demand among investors for higher yield.
[]
Philippine state agency PSALM, which oversees the assets
and debt of National Power Corp, sold 10-year bonds on Tuesday
yielding 7.375 percent that were four times oversubscribed. The
bonds were trading at a price of 101.125/101.375 versus its
issue price of 99.127, a trader said.
Credit analysts at Calyon said in a note that negative data
have not derailed appetite for new issuances, and with supply
tight investors sick of the pittance offered in money markets
may eventually go looking for yield in lower quality credit.
"Retail and accounts continue to be long-cash and the
street knows it," they said. "At this pace, we could
potentially see markets here beginning to take tentative steps
lower down the credit curve."
U.S. crude for July delivery <CLc1> rose 0.6 percent to
$60.47 a barrel as refinery problems continued to spur fears
about tight supply in the summer. Brent crude was trading
higher on the day as well, at $59.16 a barrel <LCOc1>.
(Additional reporting by Jun Ebias)
(Editing by Kmi Coghill)
