* Euro has near-term support at $1.3164 before EU summit
* Are US 10-year yields near the top of a range?
* SE Asia stocks underperform though still tops on year
(Updates price levels)
By Kevin Plumberg
HONG KONG, Dec 16 (Reuters) - The euro steadied on
Thursday as dealers squared up positions ahead of a meeting of
European Union leaders, while U.S. Treasuries bounced after a
selloff overnight took 10-year yields above 3.5 percent,
sending some investors hunting for value.
Traders were wary that a discussion in Brussels about a
permanent mechanism to prevent fiscal crises from spreading
may push up the euro toward $1.33, though persistently higher
U.S. bond yields have been keeping the dollar broadly
supported in thin, year-end markets. []
The euro wobbled overnight after Moody's said it was
considering downgrading Spain's credit rating and as a bond
auction in Portugal saw its three-month borrowing costs nearly
double. Spain will auction 10- and 15-year bonds later on
Thursday.
Shrinking trading volumes in Asian equity markets have
been a tell-tale sign that investors comfortable with their
cash allocations are heading to the sidelines for the rest of
the year rather than expose their portfolios to more risks.
A steep tumble in U.S. Treasuries in the wake of a deal in
Washington to extend tax cuts, though, has kept fixed income
fund managers nimble. Some investors see an end on the horizon
to the selling pressure even though trend-following funds have
kept upward pressure on yields in recent days.
"Before the tax cuts, many investors had expected a
2.5-3.0 percent range for 10-year yields. Now their
expectations have shifted to 3.0-3.5 percent. I think the
10-year yield will eventually fall," said Hiroshi Yokotani,
fixed income director at Alliance Bernstein in Tokyo.
In equities, Japanese stocks continued to outperform
global stock markets thanks to foreign investment.
Japan's Nikkei share average was flat, though up 1 percent
so far in the week, outperforming the MSCI all-country
world index advance of 0.1 percent .
"The Nikkei is taking a breather after a six-week rally,
but sentiment remains bullish overall," said Takashi Ohba, a
senior
strategist at Okasan Securities in Tokyo.
Foreign investors have been net buyers of Japanese stocks
for six consecutive weeks to Dec. 11, purchasing a cumulative
$9.8 billion worth of equities, Japan's finance ministry data
showed.
The MSCI Asia Pacific ex-Japan index of equities fell 0.5
percent in sluggish trade, despite another
flurry of positive U.S. economic data overnight. The consumer
discretionary sector, which has been a popular buy this year,
was down 1.6 percent, the biggest underperformer in the index,
suggesting profit taking was at play.
After sliding more than 2 percent in November on early
profit taking, the index has staged a rally in light turnover
in December. It is up 3.6 percent so far in December.
Southeast Asian equities were the region's biggest
underperformers in terms of countries on Thursday, though they
will probably keep the crown of best performing Asian stock
markets excluding frontier countries.
After accounting for currency moves, the benchmark stock
index in Thailand is up 55 percent so far this year,
followed closely by Indonesia and the Philippines, which have
risen 47.5 percent and 38.6 percent <.PSEi>,
respectively.
Thailand and Indonesia were the third- and fifth-most
favoured countries to invest in among global emerging market
investors, a Bank of America-Merrill Lynch survey released on
Tuesday showed.
Fast-growing emerging economies are expected to remain
strong draws for foreign investors in 2011.
EURO STEADIES, BUT FOR HOW LONG?
The euro was largely unchanged on the day at $1.3212
, with talk of sell orders around $1.3300 keeping it
hemmed in a tight range, traders said.
Chart support at $1.3164, the low of the range carved out
in the past week, if breached could lead to a further decline
to around $1.2969, the November low.
Ten-year U.S. Treasury futures expiring in March were up
8/32 <TYc2> after plumbing a 7-month low overnight. In the
cash market, the yield on the 10-year note slid to 3.49
percent after climbing as high as 3.57 percent
overnight.
The 10-year yield has risen nearly 90 basis points since
November, contributing to a dramatic steepening of the yield
curve of 2-year to 10-year debt to 282 basis points from 226
basis points at the beginning of November.
That spread is on course for the most widening in a
quarter since the first quarter of 2008.
(Additional reporting by Antoni Slodkowski and Hideyuki Sano
in TOKYO)
