Sterling on a high; shares sidelined as caution rules

By Wayne Cole

SYDNEY (Reuters) - Sterling stole the show in Asia on Wednesday amid speculation Britain's surprise decision to call a snap election could ultimately deliver a more market-friendly outcome in its divorce from the European Union.

Safe-havens stayed in favour as gold and bonds climbed ahead of presidential elections in France and on escalating tensions between the United States and North Korea.

Equities were largely sidelined with MSCI's broadest index of Asia-Pacific shares outside Japan off 0.1 percent to the lowest since mid-March.

Japan's Nikkei <.N225> eased 0.2 percent, in line with losses across the region.

Sterling surged to a more than six-month top against the dollar after British Prime Minister Theresa May called an early general election for June 8, seeking to strengthen her party's majority ahead of Brexit negotiations.

"We expect that the PM's gamble is likely to buy her more time as well as room for manoeuvre in the Brexit negotiations as she will depend less on fringe groups in her own party," said Citi's chief global political strategist, Tina Fordham.

"That may reduce the risk of a negotiation failure and thus 'chaotic Brexit', but also of the UK remaining in the Single Market in the long-term or even reversing the decision to leave the EU."

The pound was lording it at $1.2846 on Wednesday having shattered a months' old trading range with a jump of 2.2 percent overnight. It also cleared the 200-day moving average for the first time since June, putting the squeeze on a raft of speculative short positions.

Dollar selling spilled out broadly, sending the euro up to a three-week high at $1.0731 . Against the yen, the dollar was stuck at 108.60 and near its lowest since November.

The dollar was also undermined by an eroding interest rate advantage as U.S. bond yields dived to five-month lows.

Yields on 10-year Treasury paper sank to 2.17 percent , a world away from the 2.629 peak seen in March.

A run of disappointing U.S. economic data and doubts the Trump administration will progress with tax cuts have quelled expectations of faster inflation and boosted fixed-income debt.

That, in turn, has taken the steam out of Wall Street. The Dow fell 0.55 percent on Tuesday, while the S&P 500 lost 0.29 percent and the Nasdaq 0.12 percent.

Goldman Sachs lost 4.7 percent in the largest daily drop since June after its earnings missed expectations as trading revenue dropped.

In commodity markets, the urge for safety helped lift gold to $1,287.70 an ounce and back towards Monday's peak of $1,295.42.

Oil prices slipped as U.S. crude stockpiles fell by less than expected and a U.S. government report said shale oil output in May was likely to post the biggest monthly increase in more than two years.

Brent crude was last down 7 cents at $54.82 a barrel, while U.S. crude fell 5 cents to $52.36.

(Editing by Sam Holmes)