GLOBAL MARKETS-Japan stocks fall but outperform Asia this week

* Investors steer clear of big bets at year end

* Japan financial, commodity stocks rise more than 2 pct
in week

* Treasuries look to end week on a soft note

* 2011 could be unfriendly for bonds, good for stocks

* Will China raise rates over the weekend?

(Updates with Japan stocks close, European openings)

By Kevin Plumberg

HONG KONG, Dec 10 (BestGrowthStock) – Japanese stocks fell on
Friday after a rise to a seven-month high earlier in the day
prompted profit taking, although they outperformed the rest of
Asia this week, while U.S. Treasuries steadied on the view
yields had risen too high, too quickly.

European shares rose for the fifth straight session, with
the FTSEurofirst 300 up 0.2 percent and London’s FTSE
100 0.3 percent firmer. U.S. stock index futures
(SPc1: ) were up 0.2 percent.

With 2010 almost over, investors were reluctant to throw
much money into any single trade now that a big selloff in
Treasuries had died down and opted instead to take profits on
small positions in thin trading volumes.

Whether China would raise interest rates this year,
perhaps even this weekend, was on investor radar screens as
they assess risk taking, especially after a state-run
newspaper said inflation may have hit 5.1 percent in November.
[ID:nTOE6B900S]

Tighter policies in China and other emerging markets
though have already been factored into economic and market
forecasts for 2011, a year in which some strategists favour
riskier assets such as stocks, commodities and credit, but not
government bonds.

“The environment looks quite favourable for equities now,
but as we proceed through 2011 investors need to be alert to a
change,” Larry Kantor, head of research at Barclays Capital,
said in a statement.

“Overstretched valuations may provide that signal, as
might central banks in emerging market countries as they pull
back from extremely supportive policies over the course of
2011.”

Japan’s Nikkei share average finished 0.7 percent lower
after briefly touching its highest level since May 14,
with investors concerned for a second day that share prices
have been pushed up too quickly without any fundamental news
to support the move.

“On top of profit-taking and overheating of the market,
some foreign investors are unloading positions and hedging
ahead of the Christmas break,” said Hiroaki Kuramochi, chief
equity marketing officer at Tokai Tokyo Securities in Tokyo.

In the MSCI Japan index, the financials and materials
sectors were the top performing sectors in the week, returning
2.7 percent and 2.4 percent, respectively.

The broader TOPIX index was up 1 percent this
week, exceeding the 0.2 percent fall of the MSCI index of Asia
Pacific stocks outside of Japan .

The MSCI index fell 0.3 percent on Friday, with the
biggest losses in the consumer discretionary sector, one of
the top performing segments of the market this year.

SMALL SIGNS OF TRACTION

The U.S. Treasury market cooled after global investors
sold mid to longer-maturity bonds earlier in the week on news
the White House proposed a payroll tax holiday that some
analysts and fund managers reckon could boost growth next year
as much as a full percentage point.

The March 10-year U.S. Treasury future was up around 9/32
(TYc2: ), while the cash 10-year note yield was down 2 basis
points on the day at 3.19 percent .

The yield has jumped 40 basis points so far in December,
putting it on track for the biggest monthly increase since
December 2009 when yields rose 64 basis points.

Pacific Investment Management Co, which runs the world’s
biggest bond fund, has revised its U.S. growth forecast for
next year in light of the tax-cut compromise.

PIMCO sees the economy growing 3 percent to 3.5 percent in
the fourth quarter of 2011 from the same period of this year.
That compared with its previous estimate for 2 percent to 2.5
percent growth. [ID:nN09274613]

“We have to recognise the small signs of traction in the
economy,” said Bernie Ward, head of non-yen sales and trading
at RBS in Tokyo.

But Ward said that some investors, such as Asia-based
portfolio and reserve managers, had been spooked by this
week’s volatility and may sit on the sidelines through the end
of the year.

“Real money is not yet ready to buy until we see some
stability,” he said.

The euro edged up 0.3 percent to $1.3270 with
dealers comfortable keeping the currency tight to a downward
trend line despite overnight news that Fitch Ratings
downgraded Ireland’s sovereign debt rating. [ID:nLDE6B81AH]

“The euro reacted well to the Fitch news on Ireland and
that really tells you that maybe this story is too well known
and traders don’t really want to sell it,” said Robert Rennie,
chief currency strategist at Westpac Bank in Sydney.

The euro was still in a down trend after hitting a 9-month
high in early November and down 7.5 percent so far this year.
However, for all the worries over the euro zone fiscal crisis,
the currency is expected to fall only roughly two cents in 12
months to $1.3050, a Reuters poll of analysts showed.

(Additional reporting by Ian Chua in SYDNEY, Antoni
Slodkowski in TOKYO and Eric Burroughs in HONG KONG)

GLOBAL MARKETS-Japan stocks fall but outperform Asia this week