GLOBAL MARKETS-Inflation anxiety jolts stocks, Asia tumbles to two-month lows

* Asian stock markets : https://tmsnrt.rs/2zpUAr4
* MSCI ex-Japan down for a second straight session
* Index hits one-month low, after tumbling 1.6% on Tuesday
* Markets await U.S. inflation report

By Swati Pandey
SYDNEY, May 12 (Reuters) - An extended sell-off drove Asian
shares to their lowest in seven weeks on Wednesday as surging
commodity prices and growing inflationary pressure in the United
States prompted markets to bet on earlier rate hikes and higher
bond yields globally.
MSCI's broadest index of Asia-Pacific shares outside Japan
.MIAPJ0000PUS slumped 1.5%, adding to Tuesday's 1.6% loss with
all major indices under heavy selling pressure
Analysts said a combination of inflation fears and some
investors cutting their exposure to over-stretched stocks or
sectors was behind the recent downturn.
At 682 points, the regional index is not too far from a
record high of 745.89 touched in February and is still up 3%
this year so far, on top of a 19% jump in 2020 and a near 16%
rise in 2019.
China's blue-chip share index .CSI300 was off 0.3%.
Australian stocks slipped 0.6% while South Korea's KOSPI
index .KS11 skidded 0.7%. Japan's Nikkei .N225 reversed
early gains to be down 0.4%.
Taiwan's benchmark index .TWII plunged 6% from all-time
highs to levels seen in February on fears it may raise its
COVID-19 alert level in "coming days", which would lead to
closure of shops dealing in non-essential items as infections
rise.
Analysts, however, doubted the broader equities sell-off
would extend much further in a world of easy accommodative
policy and fiscal largesse.
"Despite the severity of the moves, we sensed limited panic
in our client conversations with many using (the) weakness as an
opportunity to buy the dip, particularly in the value orientated
areas e.g. banks, energy and insurance," JPMorgan analysts wrote
in a note.
Overnight on Wall Street, technology stocks were among the
biggest losers though the tech-focused Nasdaq .IXIC reversed
the bulk of its early 2% decline over the course of the day. The
Dow .DJI dropped 1.4% and the S&P 500 .SPX fell 0.9%.
The equity rout barely helped drive any safe haven flows
into the greenback even as futures pointed to yet another
negative open for Wall Street. E-mini futures for the S&P 500
ESc1 stumbled 0.7% while futures for the tech-heavy Nasdaq
NQc1 were down 0.9%.
"What is unusual about the last two days is that the
equity-market angst did not provide the U.S. dollar with a
notable lift," said Alvin T. Tan, head of Asia FX strategy at
RBC Capital Markets.
Tan said there was no sign of "risk-off" among regional
currencies either with the high-carry Indian rupees INR= and
Indonesia rupiah IDR= largely holding their ground.
"Still, it is not yet obvious if this signifies a new market
paradigm. As they say, one swallow does not make a summer," Tan
added.
All eyes are now on the U.S. consumer price index report to
be released by the U.S. Labor Department on Wednesday with
market-based measures of inflation expectations having moved
higher US5YTIP=RR US10YTIP=RR .
"Prices are definitely on the increase and this is evident
across a wide range of sectors and geographies. What is less
clear is the longevity of the increase in prices," ANZ analysts
wrote in a note.
Treasury yields have remained stuck to a tight range. The
yield on benchmark 10-year Treasuries US10YT=RR drifted lower
to 1.6217%, a far cry from the 2% level seen in before the
coronavirus pandemic. US/
The U.S. Federal Reserve expects higher inflation though
officials have pointed to transient factors and base effect for
the temporary rise.
"The upshot is the Fed remains far away from achieving its
aim of average inflation of 2% per year. The Fed's
ultra-accommodative monetary policy is part of the reason why we
consider the USD downtrend is intact," said Commonwealth Bank of
Australia analyst Carol Kong.
The dollar was up 0.2% against the Japanese yen JPY= at
108.84 as it meandered in a narrow 107-110 band.
The dollar index =USD , which measures the greenback
against six major currencies, was a shade higher at 90.398,
after touching a two-month low of 89.979. USD/
The currencies of major natural resource suppliers such as
Canada have been buoyant amid rising commodity prices.
The loonie CAD=D3 held near a 3-1/2-year high of C$1.2078.
The Australian dollar AUD=D3 , another proxy for commodity
prices, was not far from a 10-week high of $0.7891 struck on
Monday. The Aussie, which is also played as a liquid proxy for
risk, fell 0.7% to $0.7788.
Oil prices reversed some of the recent gains with U.S. crude
CLc1 off 18 cents at $65.10 a barrel. Brent crude LCOc1
slipped 25 cents to $68.30 per barrel. O/R
Spot gold was off slightly at $1,827 an ounce. XAU=
In cryptocurrencies, ether ETH=BTSP hit a fresh record
high touched on Monday to be at $4,349.44. The value of the
second-biggest digital token has surged over 5.5 times so far
this year.

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