Global markets - Dollar sags after weak data, bonds resume retreat

By Wayne Cole and Shinichi Saoshiro

SYDNEY/TOKYO (Reuters) - The U.S. dollar was broadly lower on Thursday after poor U.S. retail sales figures proved a huge disappointment to those expecting a strong American economic rebound from a weather-weakened first quarter.

Spreadbetters expected higher bond yields resulting in a slightly lower open for Britain's FTSE, Germany's DAX and France's CAC.

Investors reacted by pushing back the likely lift-off date for a rate hike by the Federal Reserve, giving gold a steer to five-week highs above $1,218 an ounce.

Yet in a bizarre turn, German and U.S. bond yields still surged to their highest in over five months as a vicious selloff extended to its 10th session.

"Global rates markets have seemingly nowhere to hide," said Bill O'Donnell, head of Treasury strategy at RBS. "Rates flows illustrated that the resolve of sellers is still unyielding."

The startling rise in yields has made equities look more expensive in comparison to debt and kept Asian share markets subdued. Australian, Singaporean and Thai stocks declined, while Chinese and South Korean shares posted modest gains. Japan's Nikkei underperformed and fell 1 percent.

"I think the market is starting to price in an end of super-easy monetary policy around the world," said Takashi Hiroki, chief strategist at Monex Securities in Tokyo.

The rise in bond yields would be among the biggest concerns for the market, Hiroki said, noting that U.S. Federal Reserve Chair Janet Yellen and billionaire investor Warren Buffett have warned that stock valuations would be expensive if interest rates rise.

MSCI's broadest index of Asia-Pacific shares outside Japan was virtually flat.

Moves were far wilder in bond markets.

Yields on German 10-year paper jumped to 0.727 percent, the highest close since early December, having been as low as 0.599 percent at one stage on Wednesday.

The selling spilled over into markets globally, with 10-year Treasury yields also ending at five-month highs. That performance was all the more bearish given an auction of new paper had drawn strong demand during the session and the data was so disappointing.

Headline U.S. retail sales were unchanged in April as autos and fuel fell back as expected, but what really hurt was that other sectors failed to bounce. The core control measure of sales favoured by economists was flat in the month, confounding forecasts for a healthy rise of 0.5 percent.

Investors reacted by pushing back the likely lift-off date for a hike by the Federal Reserve. While Fed officials keep insisting that a hike could come from June onward, markets are not convinced it will be able to move at all this year.

With higher rates seeming ever more distant, investors bailed out of long U.S. dollar positions and took its index down to 93.589, bringing losses to nearly 7 percent from a 12-year peak of 100.390 set in March.

Against the yen, the greenback slid to a two-week trough of 119.03, while the euro came within a whisker of a two-month peak of $1.1392 set last week. It last stood at $1.1362.

A star performer was the New Zealand dollar which flew higher after domestic retail sale data blew away all expectations with a record rise of 2.7 percent.

The kiwi was up at $0.7529, a dramatic turnaround from a two-month trough of $0.7318 hit earlier in the week.

In commodity markets, oil gave back a little of its recent hefty gains after weak U.S. data raised prospects of lower global demand.

U.S. crude futures were off 19 cents at $60.31 a barrel, while Brent lost 16 cents to $66.65.

(Additional reporting by Hideyuki Sano in Tokyo; Editing by Shri Navaratnam, Richard Borsuk and Eric Meijer)