RPT-GLOBAL MARKETS-Dollar, bond yields fall, Fed view uncertain

                                
 * Stocks edge up, helped by the financial sector
                                
 * Crude steadies after rising overnight to near $140
                                
 * South Korea stocks fall on labour strike
 (Repeats to more subscribers, updates prices throughout)
                                
 By Kevin Plumberg
                                
 HONG KONG, June 17 (Reuters) - The U.S. dollar fell and
government bond prices rose on Tuesday as investors
reconsidered whether the Federal Reserve or the Bank of Japan
would raise interest rates with such cloudy economic outlooks.
                                
 European shares edged up, helped by gains at banks and
mining stocks, ahead of results from Goldman Sachs.
                                
 Stocks in Asia were mixed, with markets struggling between
fears about high inflation after oil prices surged to a fresh
record overnight just shy of $140 and optimism that the worst
may be over for the financial industry.
                                
 Financial sector shares in Japan and South Korea firmed
after results from Lehman Brothers <LEH.N> did not contain any
surprises, giving investors hope that Goldman Sachs <GS.N> and
Morgan Stanley <MS.N> will at least meet expectations when they
announce their earnings later this week.
                                
 Still, uncertainty reigned despite oil prices, which were
steady around $134.50 a barrel <CLc1> after hitting an all-time
high overnight of $139.89. [O/R]
                                
 Crude's 40 percent surge so far this year has fuelled fears
of lower consumer demand and business investment around the
world and confounded central bankers caught between sluggish
global growth and rising inflation.
                                
 Three major newspapers have carried articles in the last
day questioning financial market expectations of aggressive
interest rate increases from the Fed, weighing broadly on the
dollar.
 [ID:nT75433] [ID:nT77881]
                                
 GROWTH VS INFLATION
                                
 "The currencies that will do well in this environment are
those where the central banks can raise rates without crushing
growth. The growth and inflation mix in the United States is
not favorable," said Patrick Bennett, Asia foreign exchange and
interest rates strategist with Societe Generale in Hong Kong.
                                
 The dollar fell 0.4 percent to 107.80 yen <JPY=>, snapping
a three-day rally. The euro rose 0.3 percent against the
dollar, at $1.5512 <EUR=>.
                                
 The euro rose to an 11-month high against the yen above
167.80 yen <EURJPY=> on expectations the European Central Bank
will almost certainly have to raise interest rates to fight
price pressures after data showed record inflation last month.
                                
 Soaring energy costs were causing frustration on the
streets as well as in markets.
                                
 Striking truckers and construction workers protesting
against high fuel costs and low wages in South Korea weighed on
the country's benchmark share index, in a stark example of the
human toll of soaring energy prices.
                                
 The KOSPI fell 0.6 percent <.KS11>, with the construction
sector one of the heaviest weights on the index.
                                
 Japan's Nikkei share average <.N225> was largely unchanged.
                                
 The MSCI index of stocks in the Asia-Pacific region outside
of Japan <.MIAPJ0000PUS> edged up 0.4 percent after hitting an
11-week low last week. Australia <.AXJO> ended nearly 1 percent
higher while Hong Kong was little changed by mid-afternoon.
                                
 The dollar's weakness dampened enthusiasm about a rally in
U.S. tech-sector shares, dragging down Tokyo Electron Ltd
<8035.T>, the second-largest maker of semiconductor equipment
in the world, and Taiwan Semiconductor Manufacturing Co Ltd
<2330.TW>.
                                
 "Caution is the word," said Peter Vann, head of investment
research at Constellation Capital Management in Sydney. "The
impact of higher petrol prices and interest rates causing a bit
of slowdown in discretionary spending is certainly having an
impact."
                                
 Both Japanese government bonds and U.S. Treasury debt rose
on lowered expectations for policy tightening by the Fed this
year.
                                
 The benchmark 10-year JGB yield, which moves inversely to
price, fell 4 basis points to 1.835 percent <JP10YTN=JBTC>,
while the two-year yield -- the most sensitive to changes in
monetary policy -- slid 4.5 basis points to 0.915 percent
<JP2YTN=JBTC> after last week touching a 10-month high of 1.025
percent.
                                
 The benchmark 10-year U.S Treasury note rose 16/32 in price
to yield 4.215 percent <US10YT=RR>, falling about 5 basis
points from late New York.
 (Additional reporting by Geraldine Chua in Sydney)
 (Editing by Kim Coghill)