* Commodities extend rally in yield hunt, inflation hedge
* Dollar extends rebound after strong jobs data
* Nikkei hits three-month highs as yen eases
* Asia ex-Japan shares retreat from 2-1/2-year highs
By Koh Gui Qing;
SYDNEY, Nov 8 (Reuters) - Gold hit a fresh record and
Japanese shares struck three-month highs on Monday as low
interest rates in advanced economies drove investors to seek
higher returns and protection against inflation.
The dollar rose sharply as traders continued to unwind
short positions after stronger-than-expected U.S. jobs data on
Friday, and as worries about debt problems in Ireland and other
parts of the euro zone weighed on the euro.
Major European shares <> eased 0.1 percent in early
trade as investors took profits on last week's strong rally,
which had pushed some markets into "overbought" territory.
"A liquidity bubble is emerging in global markets," said
Kenichi Hirano, operating officer at Tachibana Securities.
"Investors increasingly believe Japanese stocks, which have
lagged behind, will also reverse course."
Super-loose monetary policy and tepid economic growth in
most of the developed world has fuelled the hunt for better
yields. Friday's strong U.S. jobs report further encouraged the
drive into riskier assets, although the effect was muted in the
currency market by the bounce in the U.S. dollar.
The U.S. dollar index <.DXY> against a basket of major
currencies rose 0.4 percent, extending its rebound from an
11-month low hit last week, restraining the yen <JPY=> from
15-year peaks and offering some respite to Japanese exporters.
[]
Japan's Nikkei average <> rose 1.1 percent to its
highest level since late July, and was the day's best performer
in Asia.
The broader MSCI Asia ex-Japan index <.MIAPJ0000PUS> eased
0.1 percent but was still a whisker from Friday's 2-1/2-year
highs.
Shanghai stocks <> struck seven-month peaks and the
Indonesian bourse <> rose to yet another record high as
foreign funds continued to flood into fast growing emerging
markets, spurred by expectations that U.S. interest rates would
stay near zero for a long time.
Since the start of 2009, Indonesian shares have leapt 172
percent, dwarfing a mere 10 percent gain in the Nikkei over the
same period.
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Click to see how higher-yielding emerging markets have
outperformed their peers: http://r.reuters.com/hep83q
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INFLATION FEARS PUSH GOLD TO NEW HIGH
Firm commodity prices led resource stocks higher across the
region, though the dollar's rebound pared gains in energy and
metals prices on Monday.
In Japan, Sumitomo Metal Mining Co <5713.T> climbed 2.3
percent and Mitsui Mining and Smelting <5706.T> gained 2.7
percent. Australia's Rio Tinto <RIO.AX> rose 0.2 percent.
Gold <XAU=> [], a traditional hedge against inflation,
briefly powered to a record above $1,398 an ounce on concerns
that fresh policy easing unveiled by the U.S. Federal Reserve
last week would inevitably fuel inflationary pressures that may
prove hard to snuff out.
Crude oil <CLc1> [] held near two-year highs and silver
<XAG=> hit 30-year peaks.
A TURN IN EURO?
Even though the currency market seemed to shy from risk on
Monday after a drop in the euro <EUR=> below $1.40 dragged
other higher-yielding currencies down with it, some investors
were not sure if selling in the euro would last.
In late trade, the euro was down at $1.3950, testing
support at $1.3920, the 61.8 percent retracement of its Oct. 20
to Nov. 4 rally to a 10-month highs.
On one hand, resurging worries about debt problems in
Europe were weighing on the common currency once more. The
ten-year Irish bond yield spread over benchmark German debt hit
record highs on Friday.
But many traders also conceded it was hard to be bullish on
the dollar given record low U.S. rates and its sluggish
economy.
"I think the euro could fall to around $1.37, though I
think its trading range since October will hold," said Keiji
Matsumoto, a strategist at Nikko Cordial Securities.
(Additional reporting by Aiko Hayashi, Hideyuki Sano and
Chikafumi Hodo in TOKYO)
(Editing by Kim Coghill)
