11:58 PM
By Kevin Plumberg
HONG KONG | Fri Dec 17, 2010 1:11am EST
HONG KONG (Reuters) - The U.S. dollar fell on Friday, struggling for support as a rapid rise in U.S. bond yields ebbed, while Asian stocks clawed higher after two days of declines.
Benchmark 10-year U.S. Treasury yields held at 3.44 percent in Asia and futures rose after a push overnight toward a seven-month high close to 3.6 percent enticed bond buyers back into the market, confounding investors hoping for a trend to cling to in the final weeks of 2010.
December's reduced trading volumes and holidays typically cause whippy price action and make big bets difficult to hold for long.
Still, stocks in advanced markets were poised to keep a year-end rally going, even though Japanese equities unofficially closed marginally lower.
The Nikkei share average .N225 edged down 0.1 percent but was still up 10 percent in the final quarter of the year. It was on course for its biggest quarterly rise since the June quarter of 2009, lifted by foreign investors hovering up cheap shares.
Japan's gains have contributed to the 6.7 percent rise of the MSCI all-country world index .MIWD00000PUS, which exceeded the 3.8 percent advance of the emerging markets index.
Year-to-date, the U.S. S&P 500 index is up 11.5 percent .SPX compared with 11.9 percent for the MSCI Asia-Pacific ex-Japan index and 8.7 percent for the MSCI world index.
If the S&P were to end the year outperforming the MSCI Asia ex-Japan index, it would be first time that that had happened in a non-crisis year since 2000.
REVERSAL OF FORTUNE
The outperformance of developed markets has been a reversal of a trend in place for most of the year: the fundamental strength of emerging markets drawing money from advanced economies.
That is not to say the outlook for emerging markets, particularly in Asia, is anything but bright.
"Loose monetary policy in the U.S., debt concerns in Europe and strong growth in Asia coupled with rising inflationary pressures should maintain the status quo of Asian currency strength in 2011," Commerzbank analysts said in a note.
For now though clear signs of improvement in the U.S. economic outlook have taken some gloss off of developing markets.
After two days of falls, the MSCI index of Asia Pacific stocks outside Japan rose 0.4 percent .MIAPJ0000PUS on Friday, with gains evenly spread across the sectors.
Momentum-driven investors helped South Korean and Taiwanese stocks lead the small regional gains, with benchmark indexes climbing 0.8 percent .KS11 and 0.6 percent .TWII, respectively.
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