By Hideyuki Sano
TOKYO (Reuters) - Asian shares tumbled on Wednesday as markets wagered the Federal Reserve would raise interest rates earlier than expected, sending U.S. bond yields higher and keeping the dollar well bid near 14-month highs against a basket of major currencies.
Some regional tech shares took a hit after Apple Inc stock
MSCI's broadest index of Asia-Pacific shares outside Japan <.MIAPJ0000PUS> slipped 1.2 percent. If sustained, it would mark the largest fall for the regional index in nearly six months.
Japan's Nikkei bucked the trend, rising 0.3 percent <.N225> on the yen's fall as well as expectations of more buying by the country's pension funds.
European shares are expected to fall follow suit, with both Germany's DAX <.GDAX> and France's CAC40 <.FCHI> falling as much as 0.3 percent.
On Wall Street, Apple's decline and higher bond yields pushed stocks down. The S&P 500 <.SPX> lost 0.7 percent, the Dow <.DJI> fell 0.6 percent and the Nasdaq Composite <.IXIC> dropped 0.9 percent.
The dollar remained well bid after economists at the San Francisco Fed shocked markets by publishing a paper saying investors expects a slower rate hikes than the U.S. policymakers themselves expect.
The research paper ramped up expectations that the Fed will signal an earlier-than-expected increase in rates at its policy-setting meeting on Sept. 16-17, possibly by omitting mention of its commitment to keep rates low "for a considerable time".
"The markets had probably become too complacent about the Fed keeping rates low for a long time because of the Ukraine crisis and so on," said Makoto Noji, senior strategist at SMBC Nikko Securities.
The dollar's index against a basket of major currencies <.DXY> rose as high as 84.519 on Tuesday, not far from the July 2013 peak of 84.753. A break above that would take it to levels unseen since July 2010. It last stood at 84.136.
The euro fell to a 14-month low of $1.2860
The specter of rising U.S. interest rates dented higher-yielding currencies that had attracted investors seeking bigger returns.
"The U.S. economy is in good shape. But look at the rest of the world; China, Europe, Japan and Brazil. They don't look particularly good. So people may question whether these markets can withstand future U.S. rate hikes," said a fund manager at a U.S. asset management firm.
The Australian dollar hit a 5 1/2-month low
As the dollar rose, gold prices hit a three-month low of $1,247.15 per ounce on Tuesday and last stood at $1,255.19
U.S. bond yields also climbed as investors reassessed the Fed's rates outlook, with the 10-year yield hitting a five-week high of 2.509 percent
The rate-sensitive two-year yield rose to 0.560 percent
(Editing by Shri Navaratnam and Simon Cameron-Moore)
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