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By Kevin Plumberg
HONG KONG, June 2 (Reuters) - Japanese government bond
prices dropped on Monday, hit by negative sentiment ahead of
auctions this week and with global inflation on the rise, while
oil prices held steady above $127 a barrel. Asian stocks edged
higher.
Bond yields in the euro zone, Japan and the United States
hit 2008 highs last week as investors scrambled to protect
their portfolios from inflation with the worst of the credit
crisis apparently over.
"With market sentiment still bearish, the supply this week
will be a challenge for investors as to how much they can
absorb," said Chotaro Morita, chief JGB strategist at Barclays
Capital in Tokyo.
Japan's Nikkei share average <> was 0.2 percent
higher, with Sony Corp <6758.T> one of the biggest gainers
after Goldman Sachs upgraded shares in the company to "buy."
Technology stocks also boosted Taiwan's TAIEX index <>, up
0.23 percent.
The MSCI index of shares in the Asia-Pacific region outside
Japan <.MIAPJ0000PUS> added 0.1 percent, while a pan-Asian
index rose 0.4 percent <.MIAS00000PUS>.
Shares in Thailand <> were expected to lose ground on
Monday after a tense weekend street protest aimed at forcing
the government of Prime Minister Samak Sundaravej to step down.
[]
"Foreign investors are queuing up to sell shares as the
political turbulence drags on," a dealer at BT Securities said.
Nervousness about an upcoming 10-year note auction in the
Japanese government bond market knocked down the cash market on
Monday and sent 10-year futures to the lowest since August
2007.
June 10-year futures <2JGBv1> dropped 0.89 point to 133.56.
The benchmark 10-year yield has surged about 50 basis
points since mid-March, when the U.S. Federal Reserve backed a
plan to bail out Bear Stearns and accepted a wider array of
collateral to provide liquidity to the market.
Fears about inflation also have investors growing impatient
with low yields in their portfolios. Central banks around the
world continue to be under pressure to contain price pressures.
Data on Monday showed annual inflation in Australia rose to
4.5 percent, the highest in the 5-year history of the gauge and
well above the Reserve Bank of Australia's 2-3 percent target.
Long-term expectations for U.S. inflation soared to the
highest since April 1995, according to a report on Friday,
heightening the danger that perceptions of high prices will
become embedded within consumers.
Also, prices of soybeans and corn both rose last week,
driven in part by fears over supply because of weather concerns
and a strike by farmers in Argentina.
Crude oil prices were stable with the July contract <CLc1>
largely unchanged at $127.23 a barrel. However, oil prices have
climbed a third so far this year and futures prices have risen
above the spot market, leading many analysts to believe energy
costs will continue to increase for the forseeable future.
The U.S. dollar rose against major currencies, tacking on
more gains after posting its first back-to-back monthly rise
since January 2007. The dollar was up 0.1 percent at 105.43 yen
<JPY=>, and the euro was down 0.1 percent at $1.5535 <EUR=>.
A stronger dollar is often viewed as a positive for many
Asian economies that depend on U.S. consumer demand for their
export markets. Rising inflation in the world's largest economy
sparked some worries about the knock-on effect in Asia, but
evidence so far has been mixed.
South Korean exports last month jumped 27.2 percent
compared with a year earlier, the fastest pace since August
2004.
"The U.S. economy may be slowing, but developing countries
are still bullish, which is supporting exports. Exports have
grown to the Middle East, South America, and rapidly growing
economies like India and China," said Song Jae-Hyeok, an
economist with SK Securities.
"But with volatile oil prices, it's hard to tell whether
June exports will also remain strong."
(Additional reporting by Chikako Mogi in TOKYO; Editing by Ian
Geoghegan)
