| Price movements at Tokyo Stock Exchange |
(Reuters) - Emerging market currencies and shares fell on Thursday and the dollar rose as a spike in U.S. debt yields drove up borrowing costs globally, overwhelming the impact of buoyant economic reports from China and Europe.
However, with capital on the move back into developed markets, European shares and the euro bounced higher when the new business surveys confirmed expectations of strengthening recovery, lifting demand for banks and other financial stocks.
Driving the flight of funds were the minutes from the last U.S. Federal Reserve policy meeting, which left unchanged market expectations that the central bank would being to taper its asset-buying program as early as next month.
"It looks as if the minutes have done little to push back on market expectations for a Fed tapering," said Ian Stannard, head of European foreign exchange strategy at Morgan Stanley.
That sentiment sent the 10-year Treasury note yield to a two-year high of 2.905 percent on Thursday, and lifted the dollar against an index of the world's major currencies by 0.25 percent .DXY.
Emerging markets, which rely heavily on cheap dollars to fund large current account deficits, were hit hard by the rise in Treasury yields. The currencies of India and Turkey hit new record lows and their stock markets and bond prices also fell.
The currencies of Indonesia, Malaysia and Thailand all hit multi-year lows as well, while share markets across Asia outside Japan .MIAPJ0000PUS dropped 1.1 percent to a six-week low.
But as data from Germany showed Europe's largest economy expanding at its fastest pace since January, coming after a similar Chinese survey signaled expansion in world's No.2 economy, the euro rose and European shares gained.
The Markit preliminary composite Purchasing Managers' Index (PMI), which measures growth in both the manufacturing and services sector and covers more than two-thirds of the German economy, rose to 53.4 in August from 52.1 in July.
"It's an increasingly buoyant-looking picture, with manufacturing seeing its best performance for a couple of years, and alongside that there's an improving service sector, so exporters are doing well and the domestic economy is healing," said Chris Williamson, chief economist survey compiler Markit.
The euro hit $1.3360 after the PMI was released, while Europe's broad FTSE Eurofirst 300 index .FTEU3 jumped 0.7 percent, snapping three days of losses.
Germany's benchmark DAX .GDAXI index traded up 0.9 percent, while London's FTSE .FTSE was up nearly one percent.
The gains in Europe offset losses elsewhere to leave MSCI's world equity index .MIWD00000PUS, which tracks shares in 45 countries worldwide, virtually flat but near six-week lows.
The data, especially the upbeat Chinese numbers, helped industrial commodities to rally, with copper up 2.0 percent at $7,385 a tonne (1.1023 ton). Gold, bothered more by the risk of Fed tapering and rising bond yields, backtracked to be little changed at $1,370 an ounce.
HSBC said its preliminary purchasing managers' index for China rose to 50.1 in August, a five-month high and just above the 50 level that separates growth from contraction.
Brent crude held above $110 a barrel on hopes for better demand from the Chinese survey, though signs that OPEC producer Libya may resume exports dragged on price. U.S. crude oil futures were up 81 cents to $104.66 a barrel.