Asian stocks fell on Thursday, led by losses on Wall Street, while a rise in euro zone debt yields amid a global bond rout kept the euro near a two-month peak versus the dollar, while the pound lost ground ahead of Britain's election later in the day. The Conservative and the opposition Labour Party have been neck and neck in opinion polls that indicate Britain could be in store for a hung parliament and another coalition government. The euro climbed as far as 74.49 pence EURGBP=R, reaching a high last seen in mid-February. It was last at 74.41 pence. Sterling was flat against the dollar at $1.5244 GBP=D4. It has lost momentum after touching a two-month peak of $1.5498 last week. Spreadbetters expected negative sentiment in equities to be retained in Europe, forecasting a slightly lower open for Britain's FTSE .FTSE, Germany's DAX .GDAXI and France's CAC .FCHI. As European deflation fears have ebbed, a seeming reversal of trades linked to the European Central Bank's big quantitative easing has resulted in a sell-off in core European bonds and equities this week, rattling investors across asset classes. MSCI's broadest index of Asia-Pacific shares outside Japan .MIAPJ0000PUS fell 1 percent as shares retreated in China, Hong Kong, Australia, South Korean and Malaysia. The Shanghai Composite Index .SSEC was down 1.4 percent on fears of fresh moves by regulators to reduce leverage in stock trading, extending its losses so far this week to 6.1 percent. [.SS] The index is still up an impressive 29 percent so far this year on expectations that China's policy easing would shore up equities. The steep gains, however, have triggered expectations of a sharp correction. "Another few such declines and some of the millions of retail investors who have recently piled into the market might start to wonder if it really is a guaranteed way to make 30-40 percent returns every year or not," analysts at Rabobank wrote in a note. Tokyo's Nikkei .N225 lost 1.1 percent in its first trading day of the week. Japanese financial markets were closed from Monday to Wednesday for public holidays. U.S. stocks ended weaker on Wednesday after U.S. Federal Reserve Chair Janet Yellen warned of high share valuations, adding to anxiety about future interest rates. [.N] Weak U.S. indicators also added to uncertainty regarding when the first rate hike by the Fed could take place. Data on Wednesday showed tepid private job gains and a second straight quarterly decline in productivity. ECONUS Shrinking expectations for an early rate hike - a tightening in June appears less and less likely - weighed on the dollar and helped its counterparts like the yen and euro. The euro was steady at $1.1343 EUR=, not far from a two-month high of $1.1371 struck overnight. The dollar stood little changed at 119.49 yen, pulling further away from this week's high of 120.51 touched on Tuesday JPY=. The euro continued to get support from a surge in euro zone bond yields, notably on German Bunds, in light of an easing in deflation fears thanks to improving European data. German 10-year bond yields DE10YT=TWEB hit a four-month high of 0.595 percent overnight. Just last month it had hit a record low of 0.05 percent, when hopes were high that the ECB's trillion euro bond buying quantitative easing program would drive the yield into negative territory. [GVD/EUR] French, Dutch, Belgian and Austrian equivalent bond yields also scaled 2015 peaks on Wednesday. In addition to sending chills through financial markets worldwide, the retreat in euro zone bonds has also weighed on U.S. Treasuries and Japanese government bonds, pushing their 10-year yields US10YT=RR JP10YTN=JBTC to two-month highs. "The focus is on whether ECB officials will express concerns over the euro's rebound and weaker European stocks, and whether that would halt the rise in Bund yields," said Masafumi Yamamoto, senior strategist for Monex, Inc. in Tokyo. "The euro's bounce could stop if Bund yields steady, but without hints of further ECB easing it could be hard to keep the currency from rising again." In commodities, U.S. crude slipped on profit taking following an overnight climb to 2015 peaks reached after a first drawdown in U.S. crude inventories since January. [O/R] U.S. crude CLc1 was down 0.7 percent at $60.53 a barrel after reaching a five-month high of $62.58 on Wednesday. Source: Reuters
