Japanese government bonds rallied on Friday following a surge in U.S. Treasuries and the dollar eased to the low end of its recent ranges on tame U.S. inflation and soft manufacturing figures. The bonds also took heart from a drop of half a percent by Tokyo stocks <.N225> on earnings concerns for tech firms, which added to uncertainty over the strength of Japan's recovery. European shares were headed for a weaker start with investors wary of the impact of high oil prices on economic growth and corporate profits. Sony Corp. <6758.T> lost 1.56 percent and Fujitsu Ltd. <6703.T> fell 1.2 percent in trading that was subdued ahead of a long weekend and the end of the first half of the business year. Most other Asian markets also fell. An MSCI index of Asian share markets outside Japan <.MSCIAPJ> was down 0.14 percent by 0605 GMT. Australia's S&P ASX 200 <.AXJO> hit a record high, Hong Kong's Hang Seng Index <.HSI> was flat and Singapore's Straits Times Index <.STI> slipped 0.21 percent. The dollar clung to late U.S. levels, buying about 109.62 yen and sticking to the 109-110.50 yen range of the past month. The euro stood at $1.2183 , up from a one-week low of $1.2120 hit before the U.S. data landed.
The yield on the benchmark 263rd 10-year Japan government bond (JGB) <0#JPTSY=JBTC> was down 1.5 basis points at 1.505 percent after slipping to as low as 1.48 percent. The December JGB futures contract <0#2JGB:> gained 0.2 points to 137.46. "The fact that the 10-year JGB yield fell below 1.5 percent again shows investors were involved, maybe buying from those who had lagged or those anticipating a further drop in yields building up positions for the second half of the fiscal year," said Hiroyuki Kubota, analyst at Research and Pricing Technologies. U.S. crude oil futures extended gains after rising in New York on concerns that a new Caribbean storm could cause problems for some U.S. refineries already dealing with the damage of deadly Hurricane Ivan, traders said. NYMEX light crude for October delivery was up 18 cents at $44.06 a barrel.
TREASURIES RALLY, FED IN FOCUS
Soft inflation and manufacturing figures sparked a rally in U.S. Treasury debt prices on Thursday that knocked yields to five-months lows. Yields on the benchmark 10-year note drove through a recent floor of 4.13 percent to hit 4.07 percent. That was down from 4.16 percent on Wednesday and a step closer to a major chart barrier at 4.00 percent. In Asia trade, the benchmark U.S. paper yielded 4.08 percent. While the figures did not change expectations the Federal Reserve would raise rates at its meeting next week, they did fuel speculation the central bank might have to ease the pace of monetary tightening later on. The Philadelphia Fed's index of manufacturing activity in the U.S. mid-Atlantic region fell to 13.4 in September from 28.5 in August, compared with milder expectations of a decline to 24.5. The U.S. consumer price index and its core component showed inflation remained tame. Both rose 0.1 percent in August. U.S. interest rate futures markets are starting to price in the possibility that the Fed will skip rate rises in its policy meetings in November and December. Economy watchers are turning their attention to the preliminary September survey of the University of Michigan, due out at 1345 GMT, to gauge whether higher oil prices had affected consumer sentiment. Gold was slightly weaker after opening with gains on the back of the euro's strength. Spot gold was around $403.75 an ounce versus $404.25 in late U.S. trade.////