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GLOBAL MARKETS-Asian shares extend bounce to 5th day, dollar sags to 3-year low

From Reuters - February 15, 2018

TOKYO (Reuters) - Asian shares rose for a fifth straight day on Friday as investor confidence slowly returns after a sharp sell-off earlier in the month, but the dollar continued its descent, hitting a three-year low against a basket of major currencies.

U.S. debt yields stood near multi-year highs. Two-year note yields hit a 9 1/2-year high as bond prices fell on Federal Reserve officials signaling that recent volatility in U.S. stocks would not stop them raising interest rates in March.

MSCIs broadest index of Asia-Pacific shares outside Japan rose 0.5 percent, though many Asian markets were closed on Friday for the Lunar New year.

Japans Nikkei rose 1.1 percent, with investors relieved to see the government appoint Bank of Japan Governor Haruhiko Kuroda for another term, in a sign the central bank will be in no rush to dial back its massive stimulus program.

Measured by the MSCIs broadest gauge of the worlds stocks covering 47 markets, global shares have now reclaimed more than half of the 10.7 percent plunge from a record intraday high on Jan. 29 to a four-month intraday low a week ago.

Investors have been reassured by a fall in the Wall Street Vix index, the fear gauge that measures the one-month implied volatility of U.S. stocks.

The index dropped below 20 for the first time since its spike to 2 1/2-year high of 50.3 last week, a jump that caused massive losses among investors who bet equity markets would be stable on a combination of solid economic growth and moderate inflation.

The Vix futures fell back to more normal patterns, from the past several days of so-called backwardation, in which the front-month contract becomes the most expensive.

The return of a more usual curve suggested that the loss-cutting and position unwinding ofvolatility short strategies had run its course for now, easing investors nerves.

The U.S. dollar, on the other hand, slipped below its January low against a basket of major currencies to reach its lowest since late 2014.

The dollar index fell to as low as 88.37, and was on course to lose over 2 percent for the week, its biggest such loss in two years.

There is no strong consensus yet on what is driving the dollars persistent weakness, especially in light of rising yields. Some say it simply reflects a return of risk appetite and a shift to higher-yielding currencies, including many emerging market ones.

But others cite concerns that Washington might pursue a weak dollar strategy as well as talk that foreign central banks may be reallocating their reserves out of the dollar.

There are also worries President Donald Trumps tax cuts and fiscal spending could stoke inflation and erode the value of the dollar.

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