* Asian stock markets : https://tmsnrt.rs/2zpUAr4
* Dollar scales 3-year peak, sovereign bonds in demand
* Markets spooked as virus spreads outside China
* Nikkei flat, yen's slide a comfort for exporters
* Gold reaches a 7-year peak; watching flash PMIs
By Wayne Cole
SYDNEY, Feb 21 (Reuters) - Asian shares were under water on
Friday as fears over the creeping spread of the coronavirus sent
funds fleeing to the sheltered shores of U.S. assets, lifting
the dollar to three-year highs.
Adding to the tension was the imminent release of flash
manufacturing surveys for a range of countries. Japan's index
dropped to 47.6 in February, from 48.8, marking the steepest
contraction in seven years. Even Wall Street turned soggy late on Thursday on news of
increased infections in Beijing and abroad. South Korea reported
52 new confirmed cases on Friday. Corporate earnings are increasingly under threat as U.S.
manufacturers, like many others, scramble for alternative
sources as China's supply chains seize up. The International Air Transport Association (IATA) estimated
losses for Asian airlines alone could amount to almost $28
billion this year, with most of that in China.
"COVID-19 anxiety has risen to a new level amid concerns of
virus outbreaks in Beijing and outside of China," said Rodrigo
Catril, a senior FX strategist at NAB.
"U.S. and EU equity markets have been sold across the board
with core global yields benefiting from safe-haven flows," he
added. "Asian currencies have suffered sharp falls, including
the yen as recession fears trump the usual safe-haven demand."
All of which made gold shine as a safe harbour. The yellow
metal was last at $1,624.94 XAU= , having added 2.6% for the
week so far to seven-year highs.
Equities lagged badly, with MSCI's broadest index of
Asia-Pacific shares outside Japan .MIAPJ0000PUS off 0.6% on
Friday in nervous trade.
South Korea .KS11 slid 1.2% as the virus spread in the
country, while Japan's Nikkei .N225 went flat even as a plunge
in the yen promised to aid exporters.
Shanghai blue chips .CSI300 were holding their nerve
thanks to the promise of more policy stimulus at home. But
both E-Mini futures for the S&P 500 ESc1 and EUROSTOXX 50
STXEc1 slipped 0.3%.
The Dow .DJI had lost 0.44% on Thursday, while the S&P 500
.SPX lost 0.38% and the Nasdaq .IXIC 0.67%.
BUYING BONDS
Sovereign bonds benefited from the mounting risk aversion,
with yields on 30-year U.S. Treasuries US30YT=RR falling below
the psychologically important 2% level to the lowest since
September 2019.
Yields on 10-year notes US10YT=RR were down 9 basis points
for the week at 1.498%, lows last seen in September.
"The U.S. 10-year has rallied more than all the other liquid
G5 bond market alternatives," said Alan Ruskin, global head of
G10 FX strategy at Deutsche Bank.
"Treasuries attract foreign bond inflows because of their
higher yields, and because higher yields leave more scope for
yields to decline."
Those flows were a boon to the U.S. dollar, boosting it to
multi-month peaks against a raft of competitors this week.
The most spectacular gains came on the Japanese yen as a run
of dire domestic data stirred talk of recession there and ended
months of stalemate in the market.
The dollar was last lording it at 112.02 yen JPY= and set
for its best week since September 2017 with a rise of 2%.
Another casualty of its close trade ties with China was the
Australian dollar, which plumbed 11-years lows AUD=D3 .
The euro fared little better at $1.0790 EUR= , having
reached depths not seen since April 2017.
Against a basket of currencies, the dollar hit a three-year
top at 99.910 .DXY having climbed 0.8% for the week so far.
Analysts at RBC Capital Markets noted the dollar's
outperformance had brought it close to breaching a host of major
chart barriers, which could supercharge its rally.
"This has allowed the DXY to approach the 100.00 threshold –
with a key resistance hurdle at 100.30 now within sight," they
wrote in a note. The same went for the Chinese yuan CNH= .
"USD/CNH is now poised to pierce resistance at 7.0559 after
the USD hit new cycle highs against other EM currencies."
Oil prices faded a little on Friday, but were still up more
than 3% for the week. O/R
U.S. crude CLc1 dipped 32 cents to $53.56 a barrel, while
Brent crude LCOc1 futures eased 37 cents to $58.94.
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