Asia shares rise, dollar supported by elevated bond yields

Asian stocks edged up on Tuesday, though moves were subdued in a holiday-curtailed week, while the greenback held near a two-year high helped by elevated US Treasury yields as investors prepared for fewer Federal Reserve rate cuts in 2025.

In China, stocks extended gains slightly on the back of news of more support from Beijing to shore up the country's stuttering economic recovery.

The CSI300 blue-chip index and Shanghai Composite Index last traded 0.9% higher each. Hong Kong's Hang Seng Index b advanced 1.08%.

Two sources told Reuters that Chinese authorities have agreed to issue 3 trillion yuan ($411 billion) worth of special treasury bonds next year, which would be the highest on record.

Chinese government bond yields ticked up in response, with the 10-year yield gaining two basis points to 1.7125%.

The news came shortly after the country's finance ministry said authorities will ramp up fiscal support for consumption next year by raising pensions and medical insurance subsidies for residents as well as expanding consumer goods trade-ins.

Still, investors remain cautious on the outlook for the world's second-largest economy, particularly as it faces the threat of hefty tariffs from US President-elect Donald Trump.

"China faces significant challenges entering 2025. The ongoing real estate crisis has shattered consumer confidence while a potential trade war with the United States could trigger the worst growth slowdown in decades," said Ronald Temple, chief market strategist at Lazard.

"Investor expectations have been raised and dashed more than once in China in recent years, and 2025 may prove to be no different. China's economic and market outlook might largely depend on the speed and magnitude of government reforms."

Elsewhere, MSCI's broadest index of Asia-Pacific shares outside Japan rose 0.44%, tracking Wall Street's overnight gain.

EUROSTOXX 50 futures ticked up 0.04%, while FTSE futures rose 0.46%. S&P 500 futures and Nasdaq futures each lost 0.05%.

Japan's Nikkei fell 0.24%.

Nippon Steel's $15 billion bid for US Steel has been referred to US President Joe Biden, a White House spokesman said, giving the president 15 days to decide on a tie up he has previously said he opposes.

Shares of Nippon Steel last traded 1.2% higher.

FED FOCUS

After a recent run of central bank decisions, this week is much quieter, leaving the rates theme the main driver of market moves, with the dollar's continued strength a burden for commodities and gold.

Markets are now pricing in just about 35 basis points of easing for 2025, which has in turn sent US Treasury yields surging and the dollar to new highs.

The two-year Treasury yield last stood at 4.3427%, while the benchmark 10-year yield steadied near a seven-month high at 4.5907%.

"Like markets, the Fed will need to consider US policies on tariffs and immigration in its inflation and growth outlook. We believe the subtle slowing in the US labor market will still be the Fed's paramount concern," said analysts at Citi Wealth.

"While always uncertain, our base case expectation for a 3.75% policy rate is unchanged. It's a far cry from the 1.7% US policy rate average of the past 20 years."

Ahead of Trump's return to the White House in January, global central banks have urged caution over their rate paths due to uncertainty on how his planned tariffs, lower taxes and immigration curbs might affect policy.

Data on Monday showed US consumer confidence unexpectedly weakened in December as the post-election euphoria fizzled and concerns about future business conditions emerged.

In currencies, the dollar index held near a two-year high at 108.14, having climbed more than 2% for the month thus far.

The euro eased 0.09% to $1.03955, while the yen languished near a five-month low at 156.99 per dollar.

Japan's Finance Minister Katsunobu Kato on Tuesday reiterated Tokyo's discomfort over excessive foreign exchange moves and put speculators on notice that authorities are ready to act to stabilise a faltering yen.

The strong dollar combined with high bond yields to weigh on gold, which stood at $2,618.10 an ounce after slipping 1% last week.

Oil prices edged higher, with Brent crude futures rising 0.5% to $72.99 a barrel, while US crude gained 0.46% to $69.56 per barrel.