GLOBAL MARKETS-Stocks slip as investors eye Chinese policy tightening prospects

* Asian shares drop after 3-day gains, China liquidity a
concern
* European stocks seen steady to softer
* U.S. bond yields jump on expectations of big govt
borrowing
* Volatility index falls to regular levels
* Oil at 1-year high on OPEC+ production cut, U.S.
inventories

By Hideyuki Sano
TOKYO, Feb 4 (Reuters) - Stocks dipped on Thursday as a
spike in short-term Chinese interest rates fanned worries about
policy tightening in the world's second-largest economy,
although improving corporate earnings and easing market
volatility helped stem losses.
U.S. bonds extended their decline, boosting the 30-year
yield US30YT=RR to its highest level since March, following
stronger economic data and a push in Washington to pass a
massive relief plan.
European stocks are expected to be steady to slightly
weaker, with Eurostoxx futures STXEc1 down 0.2% and FTSE
futures FFIc1 up 0.1%.
MSCI's ex-Japan Asian-Pacific index fell 1.2%
.MIAPJ0000PUS , led by drops in South Korea and China, while
Japan's Nikkei .N225 lost 1.1%, both snapping a three-day
winning streak. U.S. stock futures ESc1 slipped 0.25% in Asia.
A rise in Chinese short-term interest rates CN7DRP=CFXS
SHIBOR= spooked risk assets, though analysts also noted
position adjustments ahead of the Lunar New Year starting next
week are likely to play a role too.
"There's persistent speculation that the Chinese authorities
may want to tighten its policy," said Wang Shenshen, senior
strategist at Mizuho Securities.
Higher interest rates raised worries Chinese policymakers
may be starting to shift to a tighter stance to rein in share
prices and property markets.
On Wall Street, the S&P 500 .SPX gained 0.10% while the
Nasdaq Composite .IXIC lost 0.02%. The NYSE Fang+ index of
leading tech giants .NYFANG hit an intraday record high,
thanks to 7.4% gain in Google parent Alphabet (NASDAQ:GOOGL) GOOG.O following
its strong earnings. Markets on the whole have calmed significantly in the past
few days with the Cboe Volatility index .VIX slipping to its
lowest levels in over a week.
As the retail trading frenzy seen last week faded, stock
prices of GameStop GME.N and other social media favourites
subsided, while silver XAG= also extended losses, having
already wiped out gains made on Monday.
Expectations of a large U.S. stimulus package underpinned
risk assets as the Democratic-controlled Congress sought to pass
President Joe Biden's $1.9 trillion COVID-19 relief package
without Republican support. While it is unclear how much compromise the Democrats are
willing to make with Republicans who are calling for a smaller
package, many investors expect additional spending of at least
$1 trillion.
"Either way, U.S. stimulus will push economic growth even
higher after the first quarter and buoy risk market sentiment
globally," said John Vail, chief global strategist at Nikko
Asset Management.
U.S. bonds reacted strongly to the possibility of bigger
borrowing, with the 30-year bond US30YT=RR last up 2.2 basis
points at 1.935%, a level last seen in late March.
The benchmark 10-year yield US10YT=RR rose to as high as
1.151%, edging near 10-month high of 1.187% marked in January.
In the currency market, rising U.S. yields helped the dollar
against its peers, with its index =USD staying near its
highest levels in about two months.
In addition, some market players say the U.S. lead in
vaccinations over other nations is starting to boost the
prospects of an earlier U.S. economic recovery, helping the
dollar.
Against the yen, the dollar hit a near-three-month high of
105.19 JPY= .
The euro lost 0.15% to $1.2014 EUR= , having hit a
two-month low of $1.2004 overnight.
The common currency failed to capitalise on improved
sentiment in Italy after former European Central Bank chief
Mario Draghi accepted the task of trying to form a new
government in the country. Gold XAU= also fell 0.8% to $1,819.0 per ounce.
Oil markets continued to advance after the OPEC+ alliance of
major producers stuck to a reduced output policy and as U.S.
crude stockpiles fell to their lowest since March last year.
U.S. crude CLc1 rose 0.79% to $56.13 per barrel and Brent
LCOc1 gained 0.74% to $58.89. Both stood near their highest
levels in about a year.

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