Asian shares weaken on worries over US protectionism

The New Year rally in Asian shares petered out on Thursday due to concerns about rising US protectionism, while bonds rebounded after China's regulator called a report about Beijing slowing or halting of its US bond buying possibly wrong.

Bitcoin fell more than 11 per cent after South Korea said it was preparing a bill to ban trade in the cryptocurrency. MSCI's broadest index of Asia-Pacific shares outside Japan shed 0.5 per cent, slipping further from Tuesday's 10-year peak. Japan's Nikkei also lost 0.5 per cent.

Ban on cryptocurrency

Bitcoin dropped to $13,189 on the Bitstamp exchange, after South Korea's justice minister said a Bill was being prepared to ban cryptocurrency trading.

US Treasuries pared some of their losses, pushing down the 10-year yield to 2.531 per cent from Wednesday's ten-month high of 2.597 per cent, hit after a Bloomberg report that China is considering slowing or halting the purchases of US Treasury bonds.

The country's foreign exchange regulator said on Thursday the report may be based on erroneous information and could be "fake", prompting investors to buy back bonds.

“That should have been good news for the US dollar, but it's still trading very weakly - it's a weak dollar story,” said Masashi Murata, currency strategist for Brown Brothers Harriman in Tokyo. “The market seems to have been looking for one-sided news to sell the dollar, this week.”

Bank of Japan trims JGB purchases

Globally bonds markets had been spooked by the Bank of Japan's routine announcement on Tuesday of a reduction in purchases of longer-tenor bonds and a jump in oil prices on top of the report about China's investment in US bonds. Those factors combined to push 10-year Treasury yields to their highest levels since March, and also pressured the dollar and stock markets.

US to exit NAFTA treaty

US shares snapped their New Year rally on Wednesday while the Canadian dollar and the Mexican peso fell after a Reuters report said Canada increasingly believes that US President Donald Trump will soon announce his intention to withdraw from the North American Free Trade Agreement treaty.

“I would think that China is flexing its muscles as the United States is looking into measures to deal with its trade deficit with China,” said Daisuke Uno, chief strategist at Sumitomo Mitsui Bank. “I have been expecting rising trade frictions between the United States and China this year. It appears China is quick to touch the Achilles heel of the States,” he added.

Reports on investigations into US imports are due to be sent to Trump this month, including probes into whether imports of steel and aluminium threaten US national security.

China IP practices probe

A separate probe into Chinese intellectual property practices may also conclude as early as this month, Axios reported, and could result in tariffs on the country's consumer-electronics exports. The speculation that China may reduce its buying in US bonds helped to underpin the euro, the most obvious alternative to the dollar for assets.

The euro traded at $1.1948, nearly flat on the day, and holding above Tuesday's low of $1.1916. Against the yen, the dollar added 0.3 per cent to 111.76, after hitting a six-week low of 111.27 yen in the previous session when it skidded 1.1 per cent to mark its largest decline in almost eight months.

The yen was buoyed this week after a cut in the Bank of Japan's bond buying on Tuesday fuelled speculation that the central bank could eventually seek to exit from its stimulus later this year, following in the footsteps of other major central banks.

The BOJ maintained the amount of its bond purchases on Thursday, helping to soothe a market rattled by its reduction earlier this week.

The Canadian dollar traded at C$1.2550 per US dollar after having lost 0.7 per cent on Wednesday.

Crude oil prices jumped on Wednesday and settled near three-year highs after US government data showed a drop in crude inventories and production, though the fall in the latter could be the result of extreme cold temperatures across the United States.

US West Texas Intermediate (WTI) crude futures traded at $63.50 per barrel, after hitting a high of $63.67 in the previous session, their loftiest level since December 2014. Brent crude futures traded at $69.10 a barrel after rising as high as $69.37 on Wednesday, highest since May 2015.

Spot gold was up 0.2 per cent at $1,319.17 an ounce after spiking to nearly four-month highs in the previous session, in line with the dollar's plunge.

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