GLOBAL MARKETS-Asian equities rebound but short-squeeze nerves persist

* MSCI AxJ index up 0.9% but headed for weekly loss
* U.S. data shows recovery proceeding, but not too fast

By Tom Westbrook and Alwyn Scott
SINGAPORE/NEW YORK, Jan 29 (Reuters) - Asian stock markets
recovered on Friday but are headed for their steepest weekly
loss in months, as a liquidity squeeze in China and a Wall
Street retail-trading frenzy has unnerved investors.
MSCI's broadest index of Asia-Pacific shares outside Japan
.MIAPJ0000PUS rose 0.9, but is headed for a weekly loss of
more than 3%, the sharpest such fall since September.
Japan's Nikkei .N225 was steady but tracking toward its
first weekly loss of 2021, having fallen 1.5% since last Friday.
Safe-haven U.S. Treasuries sold off overnight and the U.S.
dollar softened a fraction with a broader improvement in risk
appetite, however S&P 500 futures ESc1 fell 0.4% in Asia
trading.
"I'm definitely seeing the nerves," said Chris Weston, head
of research at Melbourne broker Pepperstone. "Asia seems a bit
unconvinced," he said. "There's a knock-on effect that happens
from targeting hedge funds, and this could have legs."
Wall Street has been gripped by a coordinated assault on
hedge-fund short positions by small traders organising over
online forums such as Reddit. They lost some of their firepower overnight when brokers cut
off leverage and restricted trading in some of the hottest names
such as GameStop GME.N and BlackBerry BB.N . The boss of popular online broker Robinhood said the curbs
were deployed to protect the brokerage and its customers and
that some restrictions will lift on Friday. The surge in volatility comes just as COVID-19 vaccine
rollouts have run into a bit of trouble and as global economic
data starts to look less rosy.
Investors were impressed by a smaller-than-expected rise in
U.S. weekly jobless claims overnight. But they still rose by
more than 840,000 and data showed the U.S. economy contracted at
its sharpest pace since World War Two last year. Vaccine production delays have also snowballed into a spat
between the European Union and drugmakers over how best to
direct the limited supplies which are available. Meanwhile, in China, the central bank injected 100 billion
yuan into the financial system on Friday after a week of sucking
liquidity which had put investors on edge as to whether the
supportive policy environment could be shifting.
The Hang Seng Index .HSI in Hong Kong opened 1% higher and
the Shanghai Composite .SSEC rose 0.6%, however both are on
course for weekly losses of more than 2%.
"Fears of (People's Bank of China) de-leveraging could
trigger the correction of China equities, and discourage capital
inflow for China stock markets," said Mizuho's chief Asian FX
strategist Ken Cheung.
The Chinese yuan firmed slightly in offshore trade CNH= to
6.4715 per dollar. The euro EUR=EBS was steady at $1.2114 and
the dollar index =USD traded in a range it has held for most
of the month, sat at 90.621.
The yield on benchmark ten-year U.S. Treasuries US10YT=RR
rose overnight and held at 1.0585% on Friday. Gold XAU= sat at
$1,842 an ounce and oil prices were steady, with brent crude
futures LCOc1 last up 0.1% at $55.60 a barrel.

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