* Markets wary after last week's Nikkei volatility
* Nikkei above 50-day moving average
* UK, US markets closed for public holidays
By Ian Chua and Vidya Ranganathan
SYDNEY/SINGAPORE, May 27 (Reuters) - Japan's Nikkei index
slid more than three percent on Monday, extending last
week's severe volatility and causing investors to worry that a
bout of profit-taking had turned into lasting doubt about the
growth and riskiness of markets.
Last week's shakeout of equity, bond and currency markets
was triggered by doubts over how much weakness in the yen
Japanese policymakers would tolerate, concerns the U.S. Federal
Reserve would reduce monetary stimulus soon, and weakness in
Chinese manufacturing data.
But U.S. equities ended off their lows on Friday while U.S.
10-year Treasury yields steadied near 2 percent, suggesting to
investors the dollar will resume its rally against the yen and
other markets will be calmer.
The dollar was last down 0.3 percent at 101.01, not
far off a two-week trough of 100.66 hit on Friday.
"It is a little bit early to get too caught up in a bearish
view," said Adrian Mowat, chief emerging markets strategist at
JPMorgan, based in Hong Kong.
"Nikkei's still above the 50-day moving average and Japan
was very overbought."
The Nikkei average dropped 7.3 percent on Thursday,
its largest single-day loss since the March 2011 earthquake and
tsunami. It was 3.3 percent down at 14,128.58 at midday on
MSCI's broadest index of Asia-Pacific shares outside Japan
has risen 6.5 percent in a little over a year.
It edged down 0.15 percent on Monday after having skidded 2.6
percent last week to one-month lows, posting its biggest fall
since May 2012.
"Last week's shock will probably last throughout this week,"
said Kenichi Hirano, a strategist at Tachibana Securities. "But
the Japanese market's fundamentals in the mid-to-long term have
not changed, so there still is upside in the longer term."
Other Asian stock markets got off to a cautious start on
Monday, having suffered their biggest weekly drop in around a
year as investors fretted about the possibility of the Federal
Reserve dialing down its stimulus programme as well as a slowing
Australia's S&P/ASX 200 index slipped 0.7 percent,
but South Korea's KOSPI managed to eke out a 0.3 percent
"While the market reaction looked a tad overdone, it is
notable that the dichotomy between growth and equity market
performance has widened over recent weeks implying that equity
markets were prone to a correction," Mitul Kotecha, head of
markets research at Credit Agricole said in a note to clients.
DOLLAR BIDS TO EMERGE?
Supporting the view that the Fed may soon scale down its
massive stimulus programme, data on Friday showed orders for
US-made durable goods rose more than expected in April, a
hopeful sign that a sharp slowdown in factory output could soon
run its course.
That should be music to the ears of dollar bulls. Indeed,
figures on Friday showed currency speculators increased bets in
favour of the greenback to the highest since at least June 2008.
The dollar index, which tracks the greenback's performance
against a currency basket, hit a three-year high last week
before succumbing to a bit of pressure. It was almost flat at
Much of the excitement in currency markets last week centred
on the yen as turbulence in the Nikkei prompted investors to
book profits on bearish yen positions. That saw the dollar
recoil from a 4-1/2 year high of 103.74 yen set on May 22.
Still, traders expect the yen's downtrend to remain intact
after the Bank of Japan (BOJ) last month unleashed the world's
most intense burst of stimulus.
On Sunday, Bank of Japan Governor Haruhiko Kuroda said the
bank will be vigilant to any signs of overheating of asset
prices or excessive risk-taking by financial institutions,
adding that there were no signs of that now.
Commodity markets were subdued with UK and U.S. financial
markets closed on Monday for public holidays. There is also
little in the way of major economic news due out of Asia.
"A calmer tone to markets ought to ensure that yen upside
will be limited and dollar buyers are likely to emerge just
below the dollar-yen 100 level," Kotecha said.
"The potential for a renewed yen decline as well as some
stabilisation in risk appetite will give some relief to Asian
currencies this week as will a relatively firm yuan."
China's central bank fixed the tightly managed yuan's
mid-point versus the dollar at 6.1811. It was the
highest fixing since the landmark revaluation in 2005.
In the spot market, the yuan was barely changed, at 6.1316
to a dollar.