* World stocks steady after 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
(Updates prices, adds U.S. stock futures)
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 served as a reminder of how tighter financial
conditions may hurt sectors where valuations appear stretched.
That sell-off was seen petering out on Tuesday as Wall
Street looked set to rebound with Asian and European stocks.
But it was just one vulnerability that also spread across
currency and debt markets in the likes of Canada and China,
where investors see the Fed as a guide for their monetary
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
China 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 held
near 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 Fed 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 recovery.
The Bank of Japan and the Bank of England also meet this
week, although no major policy changes are expected.
Futures showed Wall Street opening 0.2 percent higher
, steadying after tech stocks notched up losses
of over 3.5 percent in the past two sessions. That has been
driven by tech giants Apple, Alphabet,
Facebook and Microsoft.
European stocks rebounded from seven-week lows in early
deals as shares in tech firms recovered and financials rose.
The pan-European STOXX 600 was up 0.6 percent,
partly recovering losses from the previous sessions. Technology
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
also rose 0.6 percent, recouping about half of
the previous day'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 raise short-term interest rates
again this week if the Fed 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 which suggests investors have worries over the long-term
health of the world's second-biggest economy.
In currencies, the Canadian dollar strengthened about
0.6 percent to trade at C$1.325, 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 regained around 0.5 percent against the
dollar, having fallen almost 3 percent since the first hint of
Britain's election result on Thursday night.
The recovery has been helped by hopes domestic politics may
be inching towards a "softer" and less economically damaging
Above-forecast UK inflation data on Tuesday further
complicates an outlook that shows the economy slowing but prices
rising much faster than the Bank of England's 2 percent target.
In commodities, oil advanced on news that Saudi Arabia would
make supply cuts to customers.
Brent crude futures were at $48.64 per barrel at
0833 GMT, up 35 cents, while benchmark U.S. crude was at
$46.38 per barrel, up 30 cents.
(Additional reporting by Nichola Saminather in Singapore;
Editing by Catherine Evans)