Tokyo - Equity markets in Asia were subdued on Wednesday as a widespread spike in debt yields dented the allure of risky assets, while the euro stood tall after surging on upbeat euro zone inflation data and hopes that Greece will reach a deal with its creditors.
Japan's Nikkei lost 0.4 percent while Australian shares shed 0.8 percent with Indonesian stocks also slipping. In a patchy session for the region, the modest gainers included South Korea's KOSPI index as well as Chinese and Hong Kong stocks.
MSCI's broadest index of Asia-Pacific shares outside Japan nudged up 0.3 percent.
US Treasury yields spiked to two-week highs overnight after German Bund yields soared on stronger-than-expected euro zone inflation data. Consumer prices rose 0.3 percent year-on-year in May, beating forecasts for a 0.2 percent increase.
Higher bond yields tend to dent the attraction of stock investments relative to bonds, as seen last month during a global rout in debt markets.
The inflation data and corresponding rise in yields boosted the euro as well. The common currency gained further support when the European Central Bank, the European Commission and the International Monetary Fund agreed on the terms of a cash-for-reform deal to be put to Greece in a bid to conclude four months of debt stalemate.
It was far from clear if the leftist government of Prime Minister Alexis Tsipras would accept the plan, but markets took it as an encouraging step forward.
Focus for the time being was on the ECB's policy meeting later in the day, with the central bank widely expected to reaffirm its commitment to its quantitative easing scheme.
“If the ECB takes a stance towards capping the once-again rising Bund yields, the euro may retrace its gains. But if the ECB merely reiterates its stance towards its commitment to easing, then yields and the euro could rise further,” said Masafumi Yamamoto, senior strategist for Monex Securities in Tokyo.
The euro gained 0.1 percent to $1.1165 after rallying 2 percent overnight. The dollar was steady at 123.97 yen, compared with a peak of 125.07 struck overnight, its highest since late 2002.
The dollar index was little changed at 95.796 after shedding 1.6 percent on Tuesday.
The Australian dollar, already on a bullish footing after the Reserve Bank of Australia (RBA) took a neutral stance on interest rates Tuesday, got a further lift after data showed the country's economy topped forecasts and grew at its fastest in a year in January-March.
“It most probably puts a floor under any further RBA easing at this stage, this is pretty much in line with their expectations,” said Michael Workman, senior economist at CBA in Sydney.
The greenback's fall gave commodities such as crude oil reprieve, with US crude gaining 1.8 percent on Tuesday. The futures last traded at $60.93 a barrel, having eased back 0.5 percent.
Reuters