8:32 PM
By Kevin Plumberg
HONG KONG | Wed Dec 15, 2010 10:36pm EST
HONG KONG (Reuters) - The euro steadied on Thursday as dealers squared up positions ahead of a meeting of European Union leaders, while U.S. Treasuries bounced after a selloff overnight took 10-year yields above 3.5 percent, sending some investors hunting for value.
Traders were wary that headlines from the discussion in Brussels about a permanent mechanism to prevent fiscal crises from spreading may push up the euro toward $1.33, though persistently higher U.S. bond yields have been keeping the dollar broadly supported in year-end markets.
Shrinking trading volumes in Asian equity markets have been a tell-tale sign that investors are heading to the sidelines for the rest of the year rather than expose their portfolios to more risks. However, Japanese stocks continued to outperform thanks to foreign investment.
"The Nikkei is taking a breather after a six-week rally, but sentiment remains bullish overall," said Takashi Ohba, a senior strategist at Okasan Securities in Tokyo.
* Japan's Nikkei share average was flat though up 1 percent .N225 so far in the week, outperforming the MSCI all-country world index advance of 0.1 percent .MIWD00000PUS.
* The MSCI Asia Pacific ex-Japan index of equities fell 0.4 percent .MIAPJ0000PUS in sluggish trade.
* After sliding more than 2 percent in November on early profit taking, the index has staged a rally in light turnover in December. It is up 3.6 percent so far in December.
* The euro was up 0.1 percent at $1.3225, though sell orders around $1.3300 kept it hemmed in a tight range, traders said. Chart support at $1.3164, the low of the range carved out in the past week, if breached could lead to a further decline to around $1.2969, the November low.
* Ten-year U.S. Treasury futures expiring in March were up 9/32 after plumbing a 7-month low overnight. In the cash market, the yield on the 10-year note slid to 3.48 percent after climbing as high as 3.57 percent overnight.
(Editing by Kim Coghill)
(Additional reporting by Antoni Slodkowski and Hideyuki Sano in TOKYO)
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