Investors in Asia batten down ahead of UK vote, Comey testimony and ECB

By Saikat Chatterjee

HONG KONG (Reuters) - Asian stocks steadied on Wednesday but investors were wary ahead of an election in Britain, a European Central Bank meeting, and testimony at a Senate Intelligence Committee hearing by James Comey, the former FBI chief fired by President Donald Trump.

MSCI's broadest index of Asia-Pacific shares outside Japan crept up 0.1 percent, with Hong Kong and mainland China stocks leading the region higher.

European stocks are set to mirror the cautious tone with major index stock futures suggesting a tepid start.

Japanese stocks were the main laggards as investors lightened holdings after the key index hit a near-two year high last Friday in thin trading.

Hong Kong , however, benefited from sustained buying by mainland Chinese investors.

All the events scheduled for Thursday are fraught with risk for investors, but testimony by former FBI chief James Comey posed a potential danger to Trump's economic agenda, and perhaps even his presidency.

"The market is especially focused on Comey's testimony," said Hikaru Sato, a senior technical analyst at Daiwa Securities.

Reports suggest Comey plans to reveal conversations in which Trump allegedly pressured him to drop his investigation into former National Security Adviser Mike Flynn, who was fired for failing to disclose conversations with Russian officials.

Risk-off sentiment pushed government bond prices up and yields lower, while propping up gold and the Japanese yen.

Ten-year U.S. Treasury yields briefly fell to seven-month lows of 2.129 percent, the lowest since Nov. 10, before recovering to 2.16 percent.

The shrinking U.S. bond yields further weakened a dollar, already handicapped by heightened political uncertainty.

The dollar wallowed near a six-week low against the safe-haven yen, quoted around 109.44 yen.

Sterling firmed to 1.2905 per dollar, but held in a tight trading range ahead of Thursday's vote.

Earlier opinion polls suggested the opposition Labour Party were virtually neck-and-neck with the ruling Conservatives, but a poll released on Tuesday put Prime Minister Theresa May on course to increase her parliamentary majority.

The euro also held firm at $1.12665 against the dollar.

The ECB policy meeting could lead to some discussion of dropping some of the central bank's pledges to ramp up stimulus if needed, four people with direct knowledge of the discussions told Reuters last week. In this high risk environment, gold was in favour, quoted around the $1,294 per ounce. It has gained nearly 7 percent in the past month.

The Australian dollar strengthened to a one-month high of $0.7540 after first-quarter growth numbers forced short covering by those investors who had expected a weaker performance.

Oil prices remained weak, with Brent crude futures struggling around $50 per barrel, despite tensions between Gulf Arab producers and falling U.S. inventories.

Brent crude futures were trading at $50.06 per barrel down 0.1 percent. U.S. West Texas Intermediate (WTI) crude futures were at $48.12 per barrel, down 0.1 percent.

(Additional reporting by Ayai Tomisawa in TOKYO; Editing by Simon Cameron-Moore)