Asia stocks slip as high bond yields weigh on equities

By Shinichi Saoshiro

TOKYO (Reuters) - Asia stocks eased on Wednesday, pulling further back from record highs, as the recent rise in global bond yields weighed on equities.

MSCI's broadest index of Asia-Pacific shares outside Japan added to the previous day's losses and dipped 0.1 percent, after reaching a record high on Monday.

Australian stocks shed 0.4 percent, South Korea's KOSPI lost 0.3 percent and Japan's Nikkei dropped 0.3 percent.

Wall Street, which has recently hit a succession of record peaks, has led a global equities rally over the past year thanks to strong world growth fuelling higher corporate earnings and stock valuations.

But the recent surge in U.S. long-term bond yields to near four-year highs have poured cold water on the rally.

U.S. stocks fell for a second straight day on Tuesday, with the Dow registering its biggest two-day drop since September 2016, pressured by healthcare stocks and rising bond yields. [.N]

"The key point is the speed of the latest rise in yields, which has been very rapid. Until recently the yield rise helped the financial sector, but the pace of the rise is now too rapid and raising worries about corporate borrowing costs," said Junichi Ishikawa, senior FX strategist at IG Securities in Tokyo.

Higher yields are seen hurting equities as they increase borrowing costs by companies and reduce their risk appetite. Higher yields also present a fresh alternative to investors, who may choose to allocate some of their money from equities to bonds.

The U.S. Treasury 10-year note yield touched its highest in nearly four years overnight at 2.733 percent, while 30-year bond yield climbed to its highest since May 2017.

Yields rose after the start of the Federal Reserve's two-day meeting on Tuesday, which could offer more clues on the central bank's economic and rate hike outlook.

Caution ahead of President Donald Trump's first State of the Union address on Wednesday also nudged yields higher.

The dollar failed to draw much support from higher Treasury yields as the risk-averse mood favoured its peers like the yen.

The dollar was little changed at 108.810 yen after going as high as 109.205 the previous day.

The euro was flat at $1.2408 after gaining 0.15 percent overnight.

The dollar index against a basket of six major currencies was at 89.153, having crawled away from a three-year low of 88.438 set on Friday.

The risk aversion in the broader markets also took a toll on recently bullish crude oil. U.S. crude futures stretched overnight losses to slide 1 percent to $63.86 per barrel.

Underpinned by the dollar's recent slide, prices had risen to $66.66 per barrel on Thursday, the highest since December 2014.

(Editing by Kim Coghill)