* Dollar, bond yield surge cools
* Bank stocks retreat, weigh on broader indices
* BOJ meets, Yellen speaks
By Jamie McGeever
LONDON, Dec 19 Stocks, the dollar and bond
yields all drifted lower on Monday as investors cashed in on
some of their recent bets that the anticipated fiscal boost from
the incoming Trump administration will support riskier assets at
the expense of bonds.
Wall Street hit record highs and the dollar rose to a
14-year peak last week, tempting investors to cash in and book
some pre-holiday profit as the last full trading week of the
year got underway.
The Japanese yen bounced back strongly from last week's
mauling, helped by strong Japanese export data, as the Bank of
Japan began a two-day policy meeting at which it is widely
expected to keep rates on hold.
Bank stocks were among the biggest fallers in Europe
following two weeks of strong gains on the back of rising bond
yields. Their decline pushed the broader indices into the red,
while Asian stocks slipped to a four-week low.
Europe's index of leading 300 shares retreated from
Friday's 11-month high and was down 0.1 percent, while banks
were down 0.9 percent. Shares in Italy's Monte dei Paschi
fell 9 percent as it made a last-ditch attempt to
raise 5 billion euros by year-end and avoid a state bailout.
Germany's DAX and France's CAC were down
0.1 and 0.2 percent, respectively, while Britain's FTSE 100
was up 0.1 percent. and U.S. stock futures pointed to a
slightly higher open on Wall Street.
"The Trump rally has stalled a little in recent sessions but
so far, I'm seeing few signs that we're going to see the year
out on a negative note," said Craig Erlam, senior market analyst
"Of course, in very quiet periods such as this, these things
can often be increasingly difficult to predict," he said.
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 would
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 almost two basis
points 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 of late.
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 102.93.
The euro traded at $1.0435, its bounce back from last
week's 14-year low of $1.03665 helped by surprisingly strong
German business morale data, while the dollar fell
0.6 percent against the yen to 117.30 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.
At its two-day policy meeting the BOJ 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 0.3 percent to $55.37 a barrel,
while U.S. West Texas Intermediate crude also added 0.3
percent to $52.05 per barrel.
(Reporting by Jamie McGeever; Editing by Gareth Jones)