Asian shares down as debate on Fed tapering picks up

Adding to the uncertainty in markets were figures showing massive sales of US Treasuries by Asian investors in June.

Tokyo: Asian stocks were weaker, gold was at two-month highs, the dollar was nursing losses and Treasury yields were at two-year highs as traders debated what differing signals meant for the timing of any tapering of the US Federal Reserve's stimulus.

Upbeat US jobs claims data and rising consumer prices suggesting a winding back of the Fed's USD85 billion a month bond buying could start as soon as next month were countered by weak results and outlooks from Wal-Mart, the world's largest retailer, and Cisco.

Adding to the uncertainty in markets were figures showing massive sales of US Treasuries by Asian investors in June.

Tokyo's Nikkei share average was down 1 percent in early deals on Friday, as US stock futures traded near five-week low after Wall Street shares had their biggest one-day drop since late June.

"It's difficult to be an exception and gain when global markets are sluggish," said Rhoo Yong-seok, an analyst at Hyundai Securities.

Benchmark U.S. 10 year yields hit two-year high of 2.823 percent on Thursday, raising fear higher bond yields could hurt a recovery in the U.S. housing markets and the economy.

And data showed foreign investors sold long-term U.S. securities for a fifth straight month in June, with China and Japan -- the two largest foreign holders of U.S. debt -- selling a combined net USD40 billion.

Analysts said global bond yields were also lifted by signs of improvement in Europe. Data showed on Wednesday the euro zone's two largest economies, German and France, grew faster than expected in April-June, which helped to pull the entire euro zone out of recession.

German bund yields rose to the highest level since March 2012 while Italian bonds' yield spread over bunds fell to two-year lows in a sign the euro zone is slowly healing from the debt crisis.

That also helped to lift the euro 0.7 percent on Thursday to USD1.3350, near double top around USD1.34 hit in June and August, pushing the dollar index down near a seven-week low hit last week.

As the dollar eased, gold prices hit two-month high of USD1,369.40 overnight and last stood at USD1,363 while silver surged more than 5 percent to three month high of USD23.15.

Brent oil prices held near four-month peaks on fears that escalating violence in Egypt could affect the Suez Canal or spread in the Middle East, where some supplies are already disrupted.