* Australia central banker squashes bets on Feb rate hike
* Korean markets jittery over possible early rate rise
* All eyes on the Fed. Will it change policy outlook?
* Japan bank stocks surge on capital rule grace period
By Kevin Plumberg
HONG KONG, Dec 16 (Reuters) - Shifting views on interest
rates in 2010 whipsawed markets on Wednesday, with the
Australian dollar tumbling as investors scaled back their bets
on aggressive rate hikes, while U.S. Treasuries rose before the
last Federal Reserve meeting this year.
Asian stocks mainly slid on profit taking, though price
action was exaggerated by thin trading volumes heading into the
year-end.
European shares were also expected to open lower and U.S.
stock futures eased <SPcs> as investors braced for the Fed's
rate decision and accompanying statement later in the day.
Japanese bank shares provided a bright spot, surging on a
report that global regulators would give banks a long grace
period before applying stricter capital rules. []
A rise in U.S. wholesale prices last month, which pushed up
Treasury yields overnight, prompted speculation the Fed may
have to account for these pressures in its post-meeting
statement, though Fed Chairman Ben Bernanke said in a letter to
a congressman that inflation is not a problem. []
The U.S. dollar was little changed ahead after rising on
Tuesday to a 2-1/2-month high against the euro. The euro was
around $1.4535 <EUR=>. The Fed will release its statement at
1915 GMT.
"Investors were concerned that if data continues to beat
expectations on the growth and price fronts, the Fed will
change its tack," Dariusz Kowalczyk, chief investment
strategist with SJS Markets in Hong Kong, said in a note.
"We do not see the Fed hiking until 2011 and attribute part
of the gain to year-end profit taking after a long downward
trend. The greenback is likely to resume declines."
With the global economy gradually recovering from the
worst
slump in generations, investors are carefully weighing when
central banks and governments will begin withdrawing massive
emergency stimulus measures, and if they can unwind such
policies without disrupting financial markets.
A top Australian central banker stunned markets on
Wednesday by saying interest rates there were back to normal,
prompting investors to slash bets that the Reserve Bank of
Australia would raise rates a fourth consecutive time in
February.[]
That piled pressure on the Aussie <AUD=>, which was already
in retreat after data showed the economy grew a meagre 0.2
percent in the third quarter, half as much as expected.
[]
The Australian dollar fell 0.9 percent to US$0.8981 <AUD=>
to its lowest since Nov. 27, while March bill futures were up
0.1 point <YBAH0> as expectations of aggressive rate hikes
receded.
JAPAN BANKS THRIVE
In Japan, shares of No.2 Mizuho Financial Group <8411.T>
vaulted 15 percent and third-ranked Sumitomo Mitsui Financial
Group <8316.T> surged 14 percent on expectations that banks may
not have to raise more funds in the near term through massive
and dilutive share sales.
The Nikkei business daily reported that the Basel Committee
on Banking Supervision had agreed to establish a transition
period of at least 10 years for new capital rules.
Three sources later said global regulators would give banks
a grace period before forcing them to implement stricter
capital regulations, but a spokesman for Japan's Financial
Services Agency said no such agreement had been reached at this
time. []
The Nikkei share average closed at a seven-week high, up
0.9 percent <>, leading Asian stock markets.
"One of the biggest problems for the Nikkei has been supply
and worry about additional equity fundraising, and if this news
is true it means that we don't need to worry about this,
especially in connection with banks, for a while," said
Nagayuki Yamagishi, a strategist at Mitsubishi UFJ Securities
in Tokyo.
The MSCI index of Asia Pacific stocks outside Japan was
down 0.8 percent <.MIAPJ0000PUS>, weighed by the materials and
consumer staples sectors. The index remained near the middle of
a 34-point range it has held since October as a global equity
rally began to lose steam
The yield on the benchmark 10-year U.S. Treasury note edged
down to 3.57 percent <US10YT=RR> after jumping to 3.62 percent
on Tuesday, the highest since August.
March 10-year U.S. Treasury futures <TYc2> were up
slightly.
The gyrations in long-dated Treasuries notwithstanding,
shorter maturity bonds have been relatively stable, suggesting
the market is still sceptical the Fed is close to signalling a
change in policy stance.
The difference of the 10-year yield over the 2-year yield,
which is usually the most sensitive to policy rate moves, is
272 basis points, having steepened 37 basis points since
October.
Still, unease about the course of monetary policy in 2010
was very apparent in markets.
Foreign investors bailed from South Korean government debt,
pushing down March futures as much as 35 ticks <KTBc1>, on
nervousness about a possible rate hike and other tightening
measures early next year. []
Oil <CLc1> hovered below $71 a barrel after snapping a
nine-day losing streak on Tuesday, buoued by data showing a
deep drawdown in U.S. heating oil and diesel stockpiles.
Gold <XAU=> was little changed at $1,125.90 per ounce as
traders waited to see if the Fed would provide any clues on the
timing of interest rate moves.
(Additional reporting by Elaine Lies in TOKYO)
(Editing by Kim Coghill)
