The dollar hit a three-week high against the euro on Monday and U.S. Treasuries fell in Asia, continuing to react to hints by Federal Reserve officials that U.S. interest rates could rise at a surprisingly fast pace. Japanese government bond (JGB) yields hit fresh three-and-a-half-year peaks and Tokyo stocks climbed in the wake of strong economic data last week. The Nikkei stock average <.N225> closed morning trade up 0.6 percent at 11,597.25, led by real estate firms such as Sumitomo Realty & Development Co <8830.T>. An MSCI index of shares elsewhere in the region <.MSCIAPJ> added 0.1 percent. The dollar gained across the board following the comments last week by Fed officials, who suggested the central bank could raise interest rates more quickly than the market had been expecting if inflation speeds up. "Rate hike expectations are still supporting the dollar," said Tomokazu Ohno, forex strategist at Shinko Securities. "The market is trying to read if the Fed will raise by 25 or 50 basis points, and in that context this week's retail sales and CPI data will be watched particularly closely."
Economists expect Tuesday's data on the consumer price index (CPI) to show a rise of 0.4 percent for May and a 0.2 percent gain in the core CPI, which excludes volatile food and energy items, according to a Reuters survey. Some analysts say a core CPI rise of 0.3 or 0.4 percent could prompt the Fed to raise its federal funds rate by half a percentage point at its policy meeting on June 29-30, rather than the quarter point the market has been expecting. The CPI data will be preceded on Monday by retail sales figures. The dollar was fetching 110.74 yen , approaching a one-week high, and up from around 110.15 in late U.S. trade on Friday. The euro was at around $1.1974 , having hit a three-week low of $1.1956.
TREASURIES SLIDE
U.S. Treasury prices faltered, pushing the yield on the benchmark two-year bond to a new two-year high of 2.90 percent , sharply higher than Thursday's close of 2.80 percent. U.S. markets were closed on Friday for the funeral of former President Ronald Reagan. Japan's central bank is widely expected to keep its monetary policy unchanged at a two-day meeting that ends on Tuesday. But bond investors are nervous about the possibility that it may act to end its ultra-loose monetary policy, following strong economic data last week. That worry helped push up the yield on 10-year JGBs by 4.5 basis points to 1.82 percent, a level not seen since late 2000. The strong economic data helped lift real estate and construction stocks in Japan, offsetting extended falls in some technology issues amid fears of weaker global semiconductor demand. Sumitomo Realty, Japan's third-biggest real estate firm, gained 3.7 percent. "The sentiment is not bad after a slew of strong economic data," said Ken Masuda, senior dealer at Shinko Securities. "But the lack of turnover means people are taking a wait-and-see stance before something noteworthy comes up, in particular something to do with higher interest rates in the U.S. and China."
TECHS DOWNGRADED
Tokyo Electron Ltd <8035.T>, Japan's biggest chip-making equipment maker, lost 2.6 percent following a downgrade last week from UBS and a pessimistic report about the chip industry from Deutsche Securities. Stock benchmarks rose 0.8 percent in Hong Kong <.HSI>, 0.7 percent in South Korea <.KS11>, a quarter of a percent in Taiwan <.TWII> and 0.1 percent in Singapore <.STI>. Australia was closed for a holiday. South Korean shares rebounded from heavy losses last week as investors saw value in technology stocks. Samsung Electronics Co Ltd <005930.KS> gained 1.3 percent despite a downgrade from Goldman Sachs. U.S. crude oil futures fell, but prices were likely to be supported by fresh violence in top oil exporter Saudi Arabia. July light crude on the New York Mercantile Exchange traded at $38.26 a barrel, down half a percent from its close on Thursday, when short-covering and forecasts for higher global demand this year pushed prices up 2.4 percent. Gold fell to $383.25 an ounce from $384.70 in London on Friday.////