* Problems outside U.S. provide support to dollar
* 10-year Japanese government bond yield falls to 4-mth low
* Toyota shares up 5.5 pct, outperforming Asia stocks
(Adds European markets, updates prices throughout)
By Kevin Plumberg
HONG KONG, Aug 8 (Reuters) - The U.S. dollar rose sharply
on Friday, hitting a five-month high against the euro and
weighing on metals prices as investors expected the malaise
that has afflicted the U.S. economy would spread to other
countries.
While the U.S. economy has not improved much by almost any
measure, investors have begun to reassess other parts of the
world, particularly after the European Central Bank president
said the euro zone faces substantially weaker growth this year
and a Japanese official warned the world's second-largest
economy may be in a recession.
European stock markets opened lower, with Britain's FTSE
100 <>, Germany's Dax <>, and France's CAC <>
down between 0.3-0.5 percent in early trade.
"We are seeing a shift away from a focus on the U.S. to a
more global problem," said Sharada Selvanathan, a currency
strategist at BNP Paribas in Hong Kong. "The dollar is getting
a boost by default."
The benchmark yield on the 10-year Japanese government
bond, which moves in the opposite direction to the price,
tumbled to a four-month low following an overnight rally in
U.S. Treasuries, as investors scrambled to the relative safety
of government debt.
This week the dollar has rallied more than 2 percent, as
measured by an index of six major currencies on the ICE futures
exchange <.DXY>, and has closed on a daily basis above its
200-day moving average -- a technical signal of a potential
turnaround that has not happened since April 2006.
The euro was down 0.6 percent at $1.5225 <EUR=>, extending
a decline that began overnight after comments from ECB
President Jean-Claude Trichet suggested interest rates were on
hold. Against the yen, the dollar rose 0.3 percent to 109.63
yen <JPY=>.
Usually the stronger dollar is seen as a boon for Asia
because of its impact on exporters. However, this time might be
different because of a general consumer spending crunch in
developed economies oweing to soaring food and energy costs.
"The combination of a stronger dollar and a weak global
consumption outlook spells trouble for Asian currencies and
especially those with where exports have high leverage to
developed economies demand," said Patrick Bennett, Asia foreign
exchange and interest rates strategist with Societe Generale in
Hong Kong.
METALS DENTED BY DOLLAR
Gold <XAU=> fell 0.5 percent to $866.40 an ounce as the
dollar rallied and reduced the metal's appeal as an alternative
investment. Bullion dropped 4.7 percent this week, the biggest
decline since March 2008.
Copper futures traded in London and Shanghai also declined
on the resurgent dollar and sneaking concerns about the world
economy.
Japan's Nikkei share average <> finished 0.3 percent
higher. Toyota Motor Co <7203.T> stock jumped 5.5 percent after
the world's biggest auto maker clung to its earnings forecasts
despite a 28 percent fall in quarterly net profit.
Outside Japan, Asia-Pacific stocks were down 0.5 percent
<.MIAPJ0000PUS>, creeping back toward a 16-month low hit on
Tuesday.
China's Shanghai composite index <> dropped 3 percent
in thin volume, led by the real estate and financial sectors.
Shares of businesses associated with the Olympics in Beijing
weakened as well as investors cashed in their bets.
Such shares had surged in the run-up to the Olympics, which
kicked off on Friday, on speculation that they would benefit
from tourist traffic during the games, though analysts said the
companies would gain little if any long-term benefit even if
Olympics business were strong.
Equity strategists with JPMorgan have begun the tricky task
of preparing for a recovery in Asia-Pacific markets sometime in
the second half. They have advised clients to bet on markets
where inflation is trending lower, such as China, Taiwan and
Singapore, by switching to the financial and consumer
discretionary sectors from the energy and materials sectors.
Oil's $25 decline in the last month has enhanced this view,
they said.
"Although the rotation argument does not require lower
commodity prices, declining prices add to the story through
both lower inflation expectations encouraging the switch into
domestic stocks and obviously lower commodity prices forcing
investors out of commodity stocks," said Adrian Mowat, emerging
Asia equity strategist with JPMorgan, in a note to clients.
In the bond market, the 10-year JGB yield fell to 1.47
percent <JP10YTN=JBTC>, the lowest in four months.
Short-term yields, which tend to most strongly reflect
shifts in the outlook for monetary policy, declined as well,
with the 2-year yield at a four-month low of 0.670 percent
<JP2YTN=JBTC>.
U.S. crude oil futures were steady around $120 a barrel
<CLc1> on Friday, recovering from three-month lows amid
concerns a 1 million barrel per day pipeline that was attacked
by Kurdish separatists in Turkey could remain shut for up to
two weeks.
