Long bonds supported as earnings worry hits stocks

TOKYO: Long-dated US Treasuries kept much of the previous session's gains in Asia on Wednesday after disappointing earnings from major US firms prompted Wall Street shares to post their biggest fall in four months.

In Asia, an improved reading in China's manufacturing data prompted minor profit-taking, helping to lift yields on 10-year US notes slightly to 1.778 percent from around 1.761 percent in late U.S trade.

Still, it is well below a high of 1.819 percent hit earlier on Tuesday as Moody's downgrade of five Spanish regions highlighted worries about Spain's fiscal woes.

The China HSBC Flash Manufacturing Purchasing Managers Index (PMI) rose to a three-month high of 49.1 in October.

Dow Jones index fell 1.8 percent on Tuesday after earning results from DuPont and United Technologies showed profit growth is slowing.

Some analysts think the market could extend gains if the US Federal Reserve reiterates its strong commitment to keeping rates low until mid-2015 when it announces its policy at 1815 GMT later in the day after a two-day policy meeting.

"The market is wrongly thinking that the Fed could become hawkish. But the Fed just won't change its stance just because there was a bunch of good data for just one month," said Tomoaki Shishido, fixed income analyst at Nomura Securities.

A run of fairly upbeat data on US housing and jobs in the past month has raised speculation that the Fed's forward guidance might be rolled back in the future.

As a result, the two-year notes yield briefly spiked to a six-month high of 0.323 percent on Tuesday, before edging back to 0.31 percent. It fell further in Asia to 0.29 percent.

Also undermining short paper was speculation the Fed may have to scale back its easing if Republican presidential candidate Mitt Romney wins next month's election as polls show he has closed the gap with President Barack Obama.

Many republicans have criticised the Fed's quantitative easing as a counter-productive policy intervention that does little to spur growth but raises the risk of future inflation.