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GLOBAL MARKETS-Asia stocks recover from 1-month low, eye Fed

Published 06/24/2009, 12:02 AM
Updated 06/24/2009, 12:16 AM

* Asia stocks up 1.1 pct, trade subdued before Fed/ECB tender

* Dollar steady after slide, oil gives up gains

* JGB 10-yr yield hits 2-1/2-mth low

* Japan export data show global recovery a long one

By Eric Burroughs

HONG KONG, June 24 (Reuters) - Asian stocks inched up on Wednesday from a one-month low hit the previous day while the dollar drifted, with investors bracing for a Federal Reserve decision and any signs the central bank is worried about the jump in U.S. bond yields.

The Fed is widely expected to keep interest rates on hold at a record low and keep its planned debt purchases unchanged, so the focus is on whether the central bank tweaks its statement to rein in a slide in U.S. Treasuries that threatens the economy's budding recovery.

Benchmark Treasury yields surged to an eight-month peak above 4 percent earlier in the month, pushing up mortgage rates and offsetting the Fed's efforts to help the economy by buying hefty amounts of government and mortgage-related debt.

Investors have started to question how the Fed will step back from its array of emergency programmes launched to stem the financial crisis and whether its use of quantitative easing will stoke inflation in the months ahead.

"The Fed will likely attempt to assure markets that it will have a credible exit strategy when the time is right," said analysts at Calyon in a note to clients.

The dollar found its footing after a sharp slide the previous day, the latest volatile move across markets in the waning days of the second quarter.

Government bonds also have recovered on building doubts about the strength of any global economic recovery. Japan's 10-year government bond yield hit a 2-1/2-month low.

Market players are also keeping a close eye on the results of a special one-year unlimited funding operation the European Central Bank is offering to banks, looking for signs of financial strain in the euro zone.

The MSCI index of Asia-Pacific shares outside Japan climbed 1.1 percent, steadying after hitting a one-month low the previous day.

Taiwan's TAIEX index was the best performer in Asia, jumping 1.9 percent as technology shares led gains across sectors.

On Tuesday, the U.S. S&P 500 edged up 0.2 percent after having started the week with a 3 percent slide.

Japan's Nikkei average climbed 0.2 percent, underpinned by a rise in energy shares such as Inpex after a jump in oil prices the previous day.

The market shrugged off Japanese data showing exports tumbled 40.9 percent in May from a year earlier, underscoring that any recovery in global trade is going to be a long one.

Crude oil surrendered some of the gains in Asia, slipping 78 cents a barrel to $68.46.

Despite the slight gains in stocks, Japanese government bonds extended their winning streak as domestic portfolio managers have reinvested funds from $105 billion of maturing bonds this month, analysts said.

A solid auction of two-year Treasuries on Tuesday also helped boost JGBs.

The 10-year JGB yield dropped 2 basis points to 1.385 percent, a 2-1/2-month low.

In currencies, the dollar edged up 0.3 percent to 95.55 yen and was little changed versus the euro at $1.4085. (Editing by Kazunori Takada)

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