* Asian, European stocks recover from tech-led sell-off
* Canadian dollar hits two-month high
* Traders see China following Fed with rate hike
* Chinese bond yield curve inverts on growth worries
* Graphic: World FX rates in 2017 tmsnrt.rs/2egbfVh
By John Geddie
LONDON, June 13 The prospect of the United
States, the world's largest economy, raising interest rates and
shrinking its mammoth balance sheet reverberated across markets
from Toronto to Beijing on Tuesday.
U.S. Federal Reserve policymakers gather in Washington for
their two-day meeting against the backdrop of a slide in tech
stocks that serves as a warning of how tighter financial
conditions may hurt sectors where valuations appear stretched.
That sell-off, which centred on Wall Street, abated in Asia
and Europe on Tuesday, but there were other flash points in
currency and debt markets as the Fed's next move was seen
potentially influencing central banks in Canada and China.
The U.S. Federal Reserve is widely expected to raise its
benchmark interest rate in a decision scheduled for Wednesday
and may also provide more details on its plans to shrink $4.5
trillion dollars of assets it amassed to nurse the economic
The Canadian dollar hit a two-month high after a policymaker
said the central bank would assess if it needs to keep rates at
near-record lows as the economy grows, while the prospect of the
Chinese central bank raising short-term rates has come as its
yield curve inverts in a worrying sign for growth.
The gap between benchmark U.S and European bond yields hit
its widest in a month as the Fed meeting also shone a light on
the slow pace of change in European Central Bank policy.
"If the Fed is tightening policy and embarking on a gradual
normalisation path, whether it is the short-term policy rates or
the balance sheet, it wants the market to believe it and to
adjust to it," said Frederik Ducrozet, an economist at Pictet
"It is not just about complacency and the creation of
financial bubbles...but also about its own credibility."
The Bank of Japan and the Bank of England also meet this
week, although no major policy changes are expected.
Asian and European stocks rebounded on Tuesday despite U.S.
tech stocks having notched up a 3.5 percent fall over
the past two sessions, driven by losses at Apple,
Alphabet, Facebook and Microsoft.
European stocks rebounded from seven-week lows in early
deals on Tuesday as shares in tech firms recovered and
The pan-European STOXX 600 <.STOXX index> was up 0.5
percent, partly recovering losses from the previous session
following a brutal sell-off in tech stocks. The tech
sector was the top sectoral gainer, up 1.1 percent after posting
a 3.6 percent loss on Monday.
MSCI's broadest index of Asia-Pacific shares outside Japan
rose 0.5 percent, recouping about half of the
previous session's losses. The MSCI Asia Pacific Information
Technology index steadied, after sliding 1.4
percent on Monday.
Some analysts had predicted Asian tech shares would not see
as intense a sell-off as their U.S. peers as their valuations
were less stretched.
"Comparatively, valuations for the IT sector in the Asia
Pacific region are less expensive compared to the U.S., which
may be why we're not seeing the situation further aggravate for
a second session," said Jingyi Pan, market strategist at IG in
For Reuters Live Markets blog on European and UK stock
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A small majority of traders in China's financial markets
think its central bank will likely raise short-term interest
rates again this week if the U.S. Federal Reserve hikes its key
policy rate, according to a Reuters poll.
But the reaction to this in bond markets has been
China's two-year yields have in the last few
sessions risen above its 10-year yields - a trend
that has only happened in a few instances over the past decade
and suggests investors have worries over the long-term health of
the world's second biggest economy.
In currencies, the Canadian dollar strengthened about
0.4 percent to trade at C$1.326, after gaining 1.1 percent on
Monday's comments from a Bank of Canada official was a
change in tone for the central bank, which said earlier this
year that rate cuts remain on the table.
"It feels like a long time since markets have been treated
to unscheduled hints of tightening, and this was quite apparent
when you saw the positive reaction of CAD crosses overnight,"
Matt Simpson, senior market analyst at ThinkMarkets in
Melbourne, wrote in a note.
Against a broad basked of trade-weighted peers, the U.S.
dollar was a touch weaker.
Sterling recovered around 0.3 percent against the euro and
the dollar, having fallen almost 3 percent slide since the first
hint of UK election results on Thursday night, helped by hopes
domestic politics may be inching towards a "softer" and less
economically damaging Brexit.
In commodities, oil advanced on news that Saudi Arabia would
make supply cuts to customers. <O/R<
Brent crude futures LCOc1 were at $48.51 per barrel at 0649
GMT, up 22 cents, or 0.5 percent, from their last close.
(Additional reporting by Nichola Saminather in Singapore;
Editing by Raissa Kasolowsky)