Dollar strong ahead of Fed meeting, Japan auto shares surge on Honda-Nissan news
Dollar hits 2-yr high vs NZD, 1-yr peak vs AUD
Automakers surge in Japan on news of Honda-Nissan talks
Gilt-bund spread widest since 1990
Adds China market moves in paragraphs 13 and 21
By Tom Westbrook
SINGAPORE, Dec 18 (Reuters) -Stocks stalled while the dollar drifted higher on Wednesday as investors made last-minute adjustments to portfolios in the countdown to the year's final salvo of central bank meetings, while news of a potential Nissan-Honda tie-up lifted car stocks.
S&P 500 futures .SPX were flat in the Asia session after the index fell in U.S. trade. European futures STXEc1 and FTSE futures FFIc1 were about 0.2% lower. MSCI's broadest index of Asia-Pacific shares outside Japan .MIAPJ0000PUS was huddled near a two-week low and had inched 0.2% higher by afternoon.
The dollar strode to a one-year high against the Australian dollar AUD=D3 and a two-year top against the New Zealand dollar NZD=D3 as expectations firmed for the Federal Reserve, later on Wednesday, to signal a cautious approach to rates in 2025.
Traders are almost certain the Fed will move the funds rate window 25 basis points lower - from its current 4.5-4.75% range - but lift its long-run interest rate projections. 0#USDIRPR
"The market reaction is likely to focus on the communication and potential guidance for further cuts," said David Doyle, head of economics at Macquarie.
"We foresee a hawkish shift in the dot plot, consistent with the movement in market expectations since the last update in September."
Then, Fed members' median projection for rates was for 3.4% at the end of next year and for a long-run neutral rate of 2.9% - well below current market estimates for a long-term neutral rate of around 3.8%.
Traders have been driving up U.S. yields and the dollar accordingly, with benchmark 10-year yields US10YT=RR touching one-month highs around 4.4% overnight, before settling at 4.39%.
Moves in the Asia session were small, muted by the upcoming Fed meeting and central bank meetings in Japan, Britain, Norway and Sweden on Thursday.
But currency markets reflected the dollar's broad strength, with the Australian dollar slipping to $0.6313 and the New Zealand dollar down to $0.5735.AUD/
The euro EUR=EBS was under pressure at $1.0502 and the yen JPY=EBS dipped slightly to 153.6 per dollar. FRX/
AUTOMAKERS SURGE
Chinese stocks rose as bonds there fell, but the brightest spot in the Asia session wasJapan's auto industry.
A record 24% jump in Nissan shares 7201.T led gains as investors cheered the prospect of consolidation bringing down costs. Shares in Honda 7267.T, whose market cap is five times larger than embattled Nissan, fell 1.6%.
The companies are in talks to set up a holding company, according to a person with knowledge of the matter, a move that would allow them to share more resources. Both said no merger had been announced but investors cheered the prospect as margins have come under intense pressure from Chinese electric vehicles.
Mitsubishi Motors 7211.T, in which Nissan is the top shareholder, jumped 20% while Mazda 7261.T gained 4%.
French automaker Renault RENA.PA owns about 36% of Nissan, according to LSEG data.
Sterling GBP=D3 was also a standout and steadfast as an unexpectedly big surge in British wages has watered down expectations for interest rate cuts.
At $1.2700 it is flat for the year and the best performing G10 currency against the dollar, while it is also within range of post-Brexit vote highs on the euro EURGBP=.
The gap between 10-year gilt yields over German bund yields DE10GB10=RR hit its widest since 1990 on Tuesday and is wider than the gap between U.S. rates and bunds DE10US10=RR.
Chinese stocks bounced on a Reuters report on China's budget deficit plans and a call from Beijing to for state-owned companies to boost valuations, while bond yields recoiled from record lows after the central bank urged caution in trading.
Weak economies in Germany and China weighed on oil prices, keeping Brent crude futures LCOc1 at $73.27 a barrel.
The rise in yields has kept a lid on gold XAU= which was trading at $2,644 an ounce. Bitcoin BTC= pulled back from near record highs to trade at $103,633.
World FX rates YTD http://tmsnrt.rs/2egbfVh
Asian stock markets https://tmsnrt.rs/2zpUAr4
Reporting by Tom Westbrook; Editing by Edwina Gibbs and Lincoln Feast.
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