GLOBAL MARKETS-Asian stocks ease on China liquidity worries, stimulus hopes lift U.S. bond yields

* Asian shares dip after 3-day gains, China liquidity a
concern

By Hideyuki Sano
TOKYO, Feb 4 (Reuters) - Asian shares dipped on Thursday as
tight liquidity conditions in China curbed buying for now,
though improving corporate earnings, expectations of large U.S.
stimulus and subsiding retail frenzy all supported risk
sentiment.
U.S. bond prices extended their decline, with the 30-year
yield US30YT=RR hitting its highest level since March,
following stronger economic data and a push in Washington to
pass a massive relief plan.
MSCI's ex-Japan Asian-Pacific index fell 0.2%
.MIAPJ0000PUS while Japan's Nikkei .N225 lost 0.4%, both
snapping a three-day winning streak.
Asian shares were hampered by tight liquidity in China after
the country's short-term interest rates CN7DRP=CFXS rose
again, reversing falls in the previous two days.
"In Asia, risk assets have been sensitive to liquidity
conditions in China as authorities have been tightening their
stance in recent weeks," said Masahiko Loo, portfolio manager at
AllianceBernstein.
Higher interest rates raised worries Chinese policymakers
may be starting to shift to a tighter stance to rein in share
prices and property markets.
The lackluster start to Asian trade followed a tepid Wall
Street session.
The S&P 500 .SPX gained 0.10% while the Nasdaq Composite
.IXIC lost 0.02%. NYSE Fang+ index of leading tech giants
.NYFANG hit an intraday record high, thanks to 7.4% gain in
Google parent Alphabet (NASDAQ:GOOGL) GOOG.O following its strong earnings.
Markets on the whole have calmed significantly in the past
few days with measure of investors' expectations on market
volatilities such as the Cboe Volatility index .VIX slipping
back to the lowest levels in over a week.
As retail trading frenzy faded, stock prices of GameStop
GME.N and other social media favorites subsided, while silver
XAG= also steadied, having already wiped out gains made on
Monday.
Expectations of a large U.S. stimulus package underpin risk
assets as the Democratic-controlled U.S. Congress pushed ahead
with a maneuver to pass President Joe Biden's $1.9 trillion
COVID-19 relief package without Republican support. While it is unclear how much compromise the Democrats are
willing to make with Republicans who are calling for a smaller
package, many investors expect an additional spending of at
least $1 trillion.
"Either way, U.S. stimulus will push economic growth even
higher after the first quarter and buoy risk market sentiment
globally," said John Vail, chief global strategist at Nikko
Asset Management.
U.S. bonds reacted strongly to the possibility of bigger
borrowing, with the 30-year bond US30YT=RR last up 2.2 basis
points at 1.934%, a level last seen in late March.
The benchmark 10-year yield US10YT=RR rose 1.8 basis
points to 1.149%, edging near 10-month high of 1.187% marked in
January.
In the currency market, rising U.S. yields helped the dollar
against its peers, with its index =USD staying near its
highest levels in about two months.
In addition, some market players say the U.S. lead in
vaccinations over other nations is starting to boost the
prospects of an earlier economic recovery in the United States,
helping the dollar.
Against the yen, the dollar changed hands at 105.04 JPY= ,
near Tuesday's high of 105.17, its highest level since
mid-November.
The euro stood at $1.20365 EUR= , having hit a two-month
low of $1.2004 overnight.
The common currency failed to capitalise on improved
sentiment in Italy, where government bond yields IT10YT=RR
tumbled after former European Central Bank chief Mario Draghi
accepted the task of trying to form a new government.
Gold XAU= also fell 0.6% to $1,821.90 per ounce.
Oil markets continued to advance as U.S. inventories hit
their lowest level in almost a year.
U.S. crude CLc1 rose 0.75% to $56.11 per barrel and Brent
LCOc1 gained 0.67% to $58.85. Both stood near their highest
levels in about 11 months.

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