* US yields up, with $65 bln in new long-end supply this
week
* Japan, S.Korea govt bonds follow Treasuries lower
* Nikkei rises to fresh 8-mth high, with exporters in
demand
* Will the U.S. dollar follow interest rate spreads now?
By Kevin Plumberg
HONG KONG, June 8 (Reuters) - The 10-year U.S. Treasury
yield hit a seven-month high on Monday ahead of fresh supply
this week and because of speculation the Federal Reserve may
have to raise interest rates sooner than anticipated, which
supported the dollar.
Japanese stocks rose to fresh eight-month highs, helped by
a report on Friday that showed fewer than expected U.S. job
losses in May, but major European stocks were expected to fall
as much as 0.6 percent, according to financial bookrunners,
hurt by lower oil prices.
The U.S. dollar edged up, after higher U.S. bond yields and
doubts about the speed at which central banks will diversify
their dollar reserves have improved its outlook. The ICE
Futures U.S. dollar index jumped 1.6 percent on Friday after
the U.S. jobs report, the biggest daily gain this year.
Investors will likely focus this week on a deluge of
Chinese economic data <ECONCN> for clues on whether consumer
demand for Asian goods is strengthening in major Western
markets, and if Chinese domestic demand is holding up despite
weak exports. []
Reports from China due this week include trade, industrial
production, fixed investment and retail sales.
Japan's Nikkei share average <> closed 1 percent
higher, with major exporters such as Canon Inc <7751.T> and
Honda Motor Co <7267.T> among the biggest supports to the
index.
"Money is flowing into assets such as commodities and
stocks as risk tolerance has steadily improved on the back of
hopes for a recovery. But we are still not in a position to be
overly optimistic over the medium to long term," said Takahiko
Murai, general manager of equities at Nozomi Securities in
Tokyo.
Highlighting investor caution, the MSCI index of Asia
Pacific stocks outside Japan <.MIAPJ0000PUS> fell 0.65 percent.
Declines were spread fairly evenly across the sectors,
suggesting investors were trimming positions on concerns about
how expensive the region had become after a three-month stock
rally.
Hong Kong's Hang Seng index <> slid 0.7 percent in
choppy trade, weighed down by a 2.2 percent drop in shares of
global lender HSBC <0005.HK>.
Australian markets were closed for a public holiday.
U.S. markets ended mixed on Friday [] and S&P 500 futures
<SPc1> were down 0.3 percent, pointing to a lower open on
Monday.
The ICE Futures U.S. dollar index, a gauge of its value
against a basket of six other currencies, rose 0.1 percent to
80.80 <.DXY>. The index was bumping up against a technical
obstacle just ahead of 81.00.
BORROWING GETS MORE EXPENSIVE
The dollar's reaction to the payrolls data was significant
because in the last several months, positive U.S. economic
surprises have usually pushed the dollar down, as investors
moved out of safe assets to higher yielding ones.
Yet, with the spread of 2-year euro zone government bond
yields over the same maturity of U.S. Treasuries collapsing
around 22 basis points since last Thursday, investors may begin
to look for higher returns in U.S. assets.
"We suspect the dollar will continue to remain supported
over the coming days, especially if interest rate differentials
are once again regaining their influence," said Mitul Kotecha,
global head of foreign exchange strategy with Calyon in Hong
Kong, in a note.
Late maturity U.S. Treasuries were under fire ahead of
auctions this week for 10-year and 30-year debt securities
worth $65 billion. The volatility in bond markets has meant
that for the U.S. government the cost of financing its growing
budget shortfall has gone up 20 to 40 basis points in the last
week.
U.S. Treasury yields edged up further after jumping on
Friday. The benchmark 10-year yield rose to 3.87 percent
<US10YT=RR>, having risen about 74 basis points in the last
month.
Higher long-term rates could undermine a U.S. economic
recovery by sapping the flow of cheap credit to the private
sector and pushing up mortgage rates.
The 2-year yield <US2YT=RR>, the most sensitive to views on
the Federal Reserve's benchmark interest rate, inched up to
1.33 percent to the highest since November 2008.
The May U.S. payrolls number led dealers to aggressively
price in rate increases by the end of 2009, quicker than many
investors had expected. []
After the selloff in Treasuries on Friday, Japanese
government bond futures fell 0.4 point <2JGBv1>, having
declined 1.2 percent in the last two months.
South Korean bond futures <KTBc1> were down 0.55 percent.
U.S. light crude for July delivery fell 1.4 percent to
$67.47 a barrel <CLc1> as the stronger U.S. dollar and profit
taking prompted a retreat from a seven-month high above $70 on
Friday.
Gold in the spot market was largely changed at $955.30 an
ounce <XAU=> after the dollar's strength on Friday cut the
metal down by 2 percent.
(Additional reporting by Aiko Hayashi in TOKYO)
