* Dollar, bond yield surge cools
* Bank stocks retreat, weigh on broader indices
* BOJ meets, Yellen speaks
By Jamie McGeever
LONDON, Dec 19 The dollar and U.S. bond yields
fell on Monday while Asian shares hit a four-week low, as
investors cashed in on some of their recent bets that the
anticipated fiscal boost from the incoming Trump administration
will support riskier assets.
Wall Street hit record highs and the dollar rose to a
14-year peak last week, but as the last full trading week of the
year got underway investors chose to take some of those chips
off the table.
The profit-taking spread to Europe, where bank stocks were
among the biggest fallers following two weeks of strong gains on
the back of rising bond yields. Their decline pushed the broader
European indices into the red.
Europe's index of leading 300 shares was down 0.2
percent, and banks were down 0.6 percent. Shares in Italy's
Monte dei Paschi fell 8.5 percent as it made a
last-ditch attempt to raise 5 billion euros by the end of the
year and avoid a state bailout.
Britain's FTSE 100, Germany's DAX and
France's CAC were down between 0.1 and 0.4 percent, and
U.S. stock futures pointed to a flat open on Wall Street.
"As we enter the Christmas, year-end holiday season, volumes
could decline and lead to choppy price action. Traders should
watch out for higher volatility due to restricted holiday
trading volumes," said Ipek Ozkardeskaya, senior market analyst
at London Capital Group
MSCI's broadest index of Asia-Pacific shares outside Japan
fell for the third straight day, shedding 0.3
percent to a four-week low. It has lost 3.7 percent since Trump
In addition, investors turned cautious after China's top
leaders said over the weekend they would stem asset bubbles in
2017 and place greater importance on the prevention of financial
Japan's Nikkei, which has benefited from the yen's
sharp fall against the dollar, snapped its nine-day winning
streak, dipping 0.1 percent from Friday's one-year high.
Financial markets briefly turned "risk-off" in late U.S.
trade on Friday following news that a Chinese Navy warship had
seized a U.S. underwater drone in international waters in the
South China Sea.
The diplomatic incident appears to have been resolved for
now after the two countries said on Saturday that China will
return the drone.
MR FOREX, MR BOND
In bonds the 10-year U.S. Treasuries yield stood
at 2.58 percent in Europe on Monday, down a basis point on the
day but still close to its two-year high of 2.641 percent
touched on Thursday.
It has risen almost 100 basis points from the low in the
hours immediately after the Nov. 8 U.S. election. That surge,
and the Federal Reserve's interest rate hike last week, have
pushed the dollar sharply higher lately.
The dollar's index against a trade-weighted basket of six
major currencies jumped to a 14-year high of 103.56 last week
although it gave up some gains on Monday.
The index last stood at 102.68.
The euro traded at $1.0459, bouncing back from last
week's low of $1.03665, its weakest since January 2003, while
the dollar fell 0.4 percent against the yen to 117.50 yen
"The dollar is acting as a brake on the extent of Fed
tightening and the extent of the bond sell-off," Societe
Generale currency analysts wrote on Monday.
"Mr Forex is hyper-sensitive to these bouts of self-doubt by
Mr Bond, and the dollar has backed off a little on this Monday
morning," they said.
The Bank of Japan started its two-day policy meeting on
Monday and is widely expected to hold policy, including its twin
targets of minus 0.10 percent interest on a part of excess
reserves and the zero percent 10-year government bond yield.
Fed Chair Janet Yellen will be speaking on "the State of the
Job Market" at 1330 EST/1830 GMT, an opportunity for market
players to gauge her assessment of the U.S. economy.
Oil prices rose in anticipation of tighter crude supply
going into 2017 following the decision by OPEC and other
producers to cut output.
Brent futures rose 0.5 percent to $55.51 a barrel,
while U.S. West Texas Intermediate crude added 0.6
percent to $52.22 per barrel.
(Reporting by Jamie McGeever; Editing by Angus MacSwan)