Asia stocks retreat

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SINGAPORE- Asian stocks snapped a three-day winning streak on Tuesday, as investor enthusiasm about a peak in global interest rates started losing steam, while the Australian dollar fell after a rate hike came with a shift in tone from the central bank.

MSCI’s broadest index of Asia-Pacific shares outside Japan fell 1.2 percent. Over the previous three sessions, a rally had lifted the benchmark by nearly 6 percent .

S&P 500 futures fell 0.2 percent , as did FTSE futures while European futures fell 0.3 percent .

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Treasuries were broadly steady in Asia, having unwound a little of the rally that followed the Federal Reserve’s decision to leave interest rates on hold last week.

Ten-year yields hovered at 4.63 percent – about 10 basis points (bps) above where they closed on Friday, but well below the 5 percent mark touched in late October.

“It continues to be a tug-of-war between markets and the Fed, as the latter has suggested that higher long-end yields would … do the job of policy tightening for them,” said Nicholas Chia, macro strategist at Standard Chartered.

“Markets probably fret that lower yields would force the Fed to re-think about an extended pause.”

Fed funds futures imply only a slim chance of another hike, but bets on rate cuts next year were trimmed.

In foreign exchange trade, the Australian dollar was the biggest mover, falling about 0.9 percent to $0.6430 after the Reserve Bank of Australia announced a 25 bp hike, as expected, taking the cash rate to a 12-year high of 4.35 percent .

But the central bank softened its language on the necessity of any further action.

“It was a dovish hike … it’s not pointing to any immediate need for a follow-up,” said RBC Capital Markets rates strategist Rob Thompson on the phone from Sydney.

The New Zealand dollar was dragged along for the ride, falling 0.6 percent to $0.5930.

Three-year Australian government bond futures rallied three ticks and the ASX200 lifted off lows to finish down 0.3 percent. -Reuters

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