GLOBAL MARKETS-Japanese stocks eye 2013 peak as dollar breaks above 101 yen

November 22, 2013

* Japan shares end Friday flat, but still up nearly 10 pct

in two weeks

* Asian stocks subdued, AUD still under pressure

* European stocks seen opening modestly higher

* Oil prices hold near month-highs on supply bottlenecks

By Wayne Cole

SYDNEY, Nov 22 (Reuters) - Japanese stocks scaled six-month

peaks on Friday as the yen took a spill, while other Asian

markets lagged as investors resigned themselves to an inevitable

slowdown in U.S. stimulus.

Tokyo's Nikkei rallied more than 1 percent but

succumbed to profit-taking late in the session to finish 0.1

percent higher.

Still, it is up nearly 10 percent over the last two weeks,

setting the stage for a re-test of its 2013 peak at 15,942.

European shares were seen starting modestly higher with

financial bookmakers expecting major European indices

to open up as much as 0.5 percent.

The Nikkei and the yen have been dancing in counter-step for

months, with every rally in the share index a signal for

speculators to dump the yen. A lower currency then promises to

boost Japanese exports and earnings, further supporting shares.

So an early spike in the U.S. dollar to above 101.20 yen

for the first time since July was a clear green light to

buy shares. The dollar retreated to 101.10 yen as the Nikkei

lost steam.

The euro climbed as far as 136.54 yen, highs not

seen since October 2009, before slipping back to 136.20.

"In the last 24 hours, the yen's price action has been tick

for tick with the Nikkei," said Alan Ruskin, global head of FX

strategy at Deutsche Bank in New York.

Bank of Japan Governor Haruhiko Kuroda gave his blessings to

the move, saying the yen was not abnormally low and there were

no signs of a bubble in shares.

At the same time, a swing higher in long-term U.S. Treasury

yields was expanding the dollar's rate advantage over the yen,

Ruskin added. Yields on 10-year Treasuries were at 2.78 percent

, compared to 0.65 percent for JGBs.

"Both sides of the USD/JPY equation are working in favour of

yen weakness," said Ruskin. "The forex message this year is that

USD/JPY and USD/EMG (emerging currencies) are most vulnerable to

a back-up in U.S. long-end yields."

Yields have moved up in expectations the Federal Reserve

will have to start tapering its asset buying at some point,

whether December or March.

Yet Wall Street has finally accepted that such a move would

not mean the Fed was any closer to actually hiking interest

rates, keeping short-term yields low.

The sheer exuberance of U.S. and Japan stocks is attracting

money away from some emerging markets, part of a long-heralded

rotation of funds to the developed world.

That shift sapped Latin American shares on Thursday

and weighed on regional markets such as the

Philippines and India.

Australian shares bounced 0.9 percent, but that came

after a four-session losing streak. South Korea climbed

0.6 percent, while Hong Kong advanced 0.5 percent.

MSCI's broadest index of Asia-Pacific shares outside Japan

rose 0.3 percent on Friday, after shedding 1.4

percent on Thursday.


The U.S. dollar fared less well against the euro, which

bounced after European Central Bank President Mario Draghi shot

down a report that the central bank was actively considering

cutting a key interest rate below zero.

That lifted the common currency up to $1.3472, from a

one-week low of $1.3399. A couple of ECB members are talking

later on Friday, along with two more officials from the Fed.

Currencies leveraged to commodities and global growth took a

hit with the Canadian, New Zealand and Australian dollar all

falling sharply.

The Australian dollar took a further slug from Reserve Bank

of Australia (RBA) Governor Glenn Stevens who said he was open

to the idea of intervention to push the currency lower.

While he added that the risks of action were still too

great, the comment served as an excuse for speculators to breach

options at $0.9250 and trigger a run to below $0.9200.

In commodity markets, Brent crude oil held near

$110 a barrel having jumped over $2 on Thursday to its highest

in more than a month.

The rally was fuelled by a sharp run-up in gasoline and gas

oil prices on news of dwindling stocks and refinery glitches in

the United States and Europe.

Upbeat U.S. economic data helped support prices, while

traders also kept an eye on talks between Western powers and

Iran on hopes of an accord over its nuclear program.

U.S. oil was off 37 cents, but that followed a rise

of $1.59 overnight.