By Hideyuki Sano
TOKYO (Reuters) - Asian shares stepped back from a one-month high on Thursday, tracking a retreat on Wall Street, while expectations of credit easing by the European Central Bank knocked down yields on U.S. and European bonds.
MSCI's broadest index of Asia-Pacific shares outside Japan dipped 0.1 percent from one-month high hit on Wednesday as Wall Street shares retreated overnight from record highs hit the day before.
"Despite the modest decline in U.S. equities today, the mood in equity markets globally remains buoyant, with major indices flirting with all-time highs and emerging equity markets rallying strongly," Barclays analysts said in a research note.
While shares prices saw limited moves, there was more pronounced price action in the world's largest bond markets, as expectations of monetary easing by the ECB drove prices up and yields down.
The central bank is preparing a package of policy options for its June meeting, including cuts in all its interest rates, and targeted measures aimed at boosting lending to small and mid-sized firms
The 10-year U.S. Treasuries yields fell to six-month low of 2.525 percent, breaking out of a long-held range, and last stood at 2.544 percent.
The yield on 10-year German Bunds fell to a one-year low of 1.369 percent while Italian 10-year debt yielded a record low of 2.901 percent.
British government bond yields dropped to six-moth low of 2.578 percent when the Bank of England offered a surprisingly dovish monetary policy outlook, even though the BoE was seen as likely to be one of the earliest major central banks to raise interest rates sooner rather than later.
The BoE pushed back against expectations it might raise interest rates in less than a year's time, leaving largely unchanged its assumptions on the timing of interest rate rises even as it acknowledged a strong recovery in the labour market.
"Their comments are extremely similar to what the Fed has said. Yes, the jobless rate is falling faster but wages are not rising much," said Tohru Yamamoto, chief fixed-income strategist at Daiwa Securities.
Small wage rises mean low inflationary pressure, allowing central banks to maintain extremely easy monetary policy. "So you can say that markets are now starting to expect a new normal, where wages do not rise much (in developed countries). If even the BoE won't raise rates, the Fed probably won't either," Yamamoto added.
In the currency market, sterling, which had been rallying so far this year on BoE expectations, fell to one-month low of $1.6753 and last stood at $1.6766.
The euro, on the other hand, stood not far from Tuesday's one-month low of $1.36885, having fallen two percent from 2 1/2-year high just under $1.40 after ECB chief Mario Draghi last week indicated his readiness to ease policy next month.
The Japanese yen gained 0.2 percent in early trade to 101.69 yen to the dollar, after data showed Japan's Jan-March GDP grew an annualised 5.9 percent, beating market expectations of a 4.2 percent expansion.
The yen's gains hurt Japanese shares, pushing down the Nikkei share average 1.4 percent.
But the impact of the data is likely to be short-lived, given that growth was boosted by last-minute buying ahead of sales tax hike in April and looks set to slow.
Later in the day, the euro zone will publish its first quarter GDP data while in the United States, CPI and industrial output figures are due.