* U.S. debt worry dampens recovery hopes, stocks
* Asia stocks soften after hitting 7-month peak, Nikkei up
* JGB 10-year yield hits 6-month high on U.S. Treasuries
* NZ dlr rebounds after S&P revises outlook to stable
* European shares expected to open lower
By Aiko Hayashi
TOKYO, May 28 (Reuters) - Asian shares fell on Thursday
from seven-month highs as concerns grew rising U.S. government
debt yields could push up borrowing costs and choke off a
potential recovery in the world's largest economy.
Major European stocks were expected to open lower as much
as 1.4 percent following weakness in Asian stocks and on Wall
Street, financial bookmakers said.
Investors will likely focus on General Motors <GM.N> as it
moved closer to filing the largest bankruptcy ever for a U.S.
industrial company after a crucial bond exchange proposal
failed, while the fate of GM's European brand Opel remained
uncertain after marathon talks with German officials ended
without a deal. []
U.S. home sales picked up in April, but the positive sign
was outweighed by worries that the U.S. government was
incurring too much debt as it tries to spend its way out of
recession, sending Treasury prices falling along with stocks.
[] []
"Though the chances of General Motors going into Chapter 11
are quite high, the market is currently watching the long-term
direction of the economy even more," said Masayoshi Yano,
senior market analyst at Meiwa Securities in Tokyo.
The benchmark 10-year yield on Japanese government bonds
hit a six-month high after U.S. Treasury debt prices came under
heavy selling pressure on supply concerns.
Underscoring the intense pressure on government finances,
New Zealand unveiled its biggest fiscal deficit in 25 years and
forecast up to 10 years of deficits and rising debt in a budget
aimed at supporting the economy while averting a credit
downgrade. []
The New Zealand dollar climbed 0.6 percent to $0.6187
<NZD=D4>, having fallen after the budget news. It hit a 7-month
high of $0.6262 on Tuesday. []
The MSCI index of Asian stocks outside Japan
<.MIAPJ0000PUS> had shed 0.3 percent as of 0605 GMT, after
ending Wednesday trade at its highest level since last October
when markets were tumbling in the wake of the collapse of
Lehman Brothers.
Japan's Nikkei average <> closed 0.1 percent higher in
choppy trade on Thursday, supported by hopes that the Japanese
economy may have seen its worst phase and is headed for a
recovery.
Japan's exports showed modest signs of recovery in April,
providing another sign that the slump in global trade may have
bottomed. []
The Japanese market is looking to Friday's Japanese April
industrial output numbers, which economists expect to show a
rise for the second consecutive month as manufacturers ramped
up production after working down inventories. []
Elsewhere in Asia, Hong Kong and Chinese markets were
closed on Thursday for a holiday. The main indexes in South
Korea <> closed up 2.2 percent, while Australia's S&P/ASX
200 index <> fell 1.2 percent.
MIXED SENTIMENT
The dollar held steady against the euro, clinging to the
gains it made on Wednesday.
Investors move funds into riskier assets when they become
more optimistic about the outlook for the U.S. and global
economy, but they probably still lack conviction about a
recovery, said a trader for a Japanese trust bank.
"People's views are mixed, there is both optimism and
pessimism," the trader said.
The euro was little changed at $1.3830 <EUR=>, having
pulled back from a five-month high of $1.4051 hit on trading
platform EBS last week.
But the dollar jumped to its highest in more than a week
against the yen and edged up against a basket of currencies,
building on gains made on Wednesday after the second of three
large U.S. Treasury auctions this week drew solid investor
demand.
The dollar rose 1.3 percent against the yen to 96.54 yen
<JPY=>, pulling away from a two-month low of 93.85 yen hit last
week.
The Australian dollar rose 1.2 percent against the yen to
75.10 yen <AUDJPY=R> and the euro gained 1.3 percent to 133.52
yen <EURJPY=R>.
JGB futures closed unchanged at 136.36 <2JGBv1> after
dipping as low as 136.02, their lowest since Oct 22.
Benchmark 10-year yields rose 1 basis point to 1.480, but
rose as high as 1.500 percent <JP10YTN=JBTC> earlier, the
highest since Nov. 17.
Buying remained limited as market participants awaited the
U.S. Treasury's auction of $26 billion in seven-year notes --
the last of this week's three auctions totalling $101 billion.
Crude prices <CLc1> fell 55 cents to below $63 a barrel on
concerns that a U.S. economic recovery could be delyed.
Oil hit a six-month high near $64 a barrel on Wednesday
after Saudi Arabia, OPEC's biggest member, said the global
economy had strengthened enough to cope with oil at $75 to $80
a barrel.
The comments came ahead of an OPEC policy review on
Thursday. []
(Additional reporting by Elaine Lies and Masayuki Kitano in
Tokyo)
