Dollar, bond yields stand tall on enhanced Fed rate hike prospects

TOKYO - The dollar stood near a three-month high against the yen on Friday after increased chances for a near-term US interest rate hike boosted Treasury yields that had already gained in the wake of a surge in British and euro zone yields. Upbeat US data including jobless claims, manufacturing activity and pending home sales strengthened the case for the Federal Reserve to raise rates by the year-end and lifted Treasury yields. The markets' focus was now turned toward third quarter US gross domestic product data due out later in the global session. Asian stocks were subdued, with MSCI's broadest index of Asia-Pacific shares outside Japan .MIAPJ0000PUS edging down 0.l percent, reflecting Wall Street's unconvincing performance overnight. South Korea's Kospi .KS11 shed 0.1 percent and Australian stocks fell 0.4 percent. Japan's Nikkei .N225 gained 0.5 percent on a weaker yen. Wall Street shared edged lower on Thursday in a choppy session after the latest round of earnings reports, with a decline in the consumer discretionary sector and interest-rate sensitive stocks outweighing gains in healthcare names. "Another fairly tepid lead from Wall Street provides Asia with little in the way of inspiration... however, look not to the S&P 500 and more toward the forex and fixed income market, because there is a strong story here," wrote Chris Weston, chief market strategist at IG in Melbourne. The dollar slipped 0.15 percent to 105.115 yen JPY= but remained in reach of a three-month peak of 105.350 seen the previous day. It was headed for a weekly gain of 1.2 percent. In a week marked by deep slides in prices of US and euro zone debt, the benchmark 10-year Treasury yield US10YT=RR climbed to a five-month high well above 1.8 percent, helped along by the surging British Gilt and German bund yields. A sell-off in Gilts had led the way on Thursday as strong third quarter U.K. growth data doused expectations for monetary easing by the Bank of England. The 10-year Gilt yield GB10YT=TWEB has risen about 20 basis points this week, its highest in four months. The German 10-year bund yield DE10YT=TWEB on Thursday soared 10 basis points to 0.19 percent, its highest since late May. The bund yield plumbed a record low minus 0.20 percent in July under the European Central Bank's extensive monetary easing. But it has recently risen amid concerns that ultra-easy policies practiced by the major central banks could have their limits and may not be continued indefinitely. The rise was less pronounced in the 10-year Japanese government bond yield JP10YTN=JBTC, but it still made a five-week high of minus 0.045 percent. The Bank of Japan in September made a change of tack and now tries to control the yield curve rather than rely on adjusting the pace of its money printing. The euro inched up 0.1 percent to $1.0906 EUR=, holding out better against the dollar compared to the Japanese yen thanks to the big rise in euro zone debt yields. The dollar index .DXY was little changed at 98.823 after rising about 0.2 percent on Thursday. It was on track to gain about 0.3 percent this week, having struck a nine-month peak along the way. In commodities, crude oil added to strong gains from Thursday, when commitments from Gulf OPEC members to cut production assuaged some lingering doubts about cooperation from other producers. Brent crude LCOc1 was up 0.1 percent at $50.51 a barrel after advancing 1 percent the previous day. It was poised for a 2.5 percent loss this week, during which it hit a four-week low earlier on caution over OPEC's output negotiations next month. -Reuters