* Year end making investors steer clear of big bets
* Treasuries look to end week on a soft note
* 2011 could be unfriendly for bonds, good for stocks
* Will China raise rates over the weekend?
By Kevin Plumberg
HONG KONG, Dec 10 (Reuters) - Japanese stocks slipped from
a seven-month high on Friday on profit taking, though were
poised to outperform the rest of Asia this week, while U.S.
Treasuries were steady on the view yields had risen too high,
too quickly.
With three weeks to go in 2010, investors were reluctant
to throw much money into any single trade now that a big
selloff in Treasuries died down and opted to take profits on
small positions in thin trading volumes.
Whether China would raise interest rates this year,
perhaps even this weekend, was still a question on investors'
radar screens with regard to risk taking, especially after a
state-run newspaper said inflation may have hit 5.1 percent in
November.
Tighter policy in China and other emerging markets though
has already been factored into economic and market forecasts
for 2011, a year in which some strategists favour riskier
assets such as stocks, commodities and credit but not
government bonds.
"The environment looks quite favourable for equities now,
but as we proceed through 2011 investors need to be alert to a
change," Larry Kantor, head of research at Barclays Capital,
said in a statement.
"Overstretched valuations may provide that signal, as
might central banks in emerging market countries as they pull
back from extremely supportive policies over the course of
2011."
Japan's Nikkei share average was down 0.4 percent
after briefly touching the highest since May 14, with
investors concerned for a second day that share prices have
been pushed up too quickly without any fundamental news to
support the move.
"On top of profit-taking and overheating of the market,
some foreign investors are unloading positions and hedging
ahead of the Christmas break," said Hiroaki Kuramochi, chief
equity marketing officer at Tokai Tokyo Securities in Tokyo.
The broader TOPIX index was up 1.2 percent so far
this week, exceeding the flat reading of the MSCI index of
Asia Pacific stocks outside of Japan .
The MSCI index was also relatively unchanged on Friday,
with gains in financials offset by declines in the materials
and consumer sectors.
The U.S. Treasury market cooled down after global
investors sold mid to longer-maturity bonds earlier in the
week after news the White House proposed a payroll tax holiday
that some analysts and fund managers reckon could boost growth
next year as much as a full percentage point.
The March 10-year U.S. Treasury future was up around 4/32,
while the cash 10-year note yield was relatively unchanged on
the day at 3.21 percent. The yield is up 41 basis points so
far in December, on track for the biggest monthly increase
since December 2009 when yields rose 64 basis points.
Pacific Investment Management Co, which runs the world's
biggest bond fund, is revising its U.S. growth forecast for
next year in light of the tax-cut compromise. PIMCO sees the
economy growing 3 percent to 3.5 percent in the fourth quarter
of 2011 from the same period of this year. That compares with
its previous estimate for 2 percent to 2.5 percent growth.
[]
The euro was flat at $1.3234 with overnight news
that Fitch Ratings downgraded Ireland's sovereign debt rating
keeping dealers from buying on dips.
"The euro reacted well to the Fitch news on Ireland and
that really tells you that maybe this story is too well known
and traders don't really want to sell it," said Robert Rennie,
chief currency strategist at Westpac Bank in Sydney.
The euro was still in a downtrend after hitting a 9-month
high in early November and down 7.5 percent so far this year.
However, for all the worries over the euro zone fiscal crisis,
the currency is seen down only roughly two cents in 12 months
to $1.3050, a Reuters poll of analysts showed.
(Additional reporting by Ian Chua in SYDNEY and Antoni
Slodkowski in TOKYO)
