Asian shares at one-year high, bonds fly high on ECB

TOKYO (Reuters) - Asian shares inched up to a one-year high on Thursday while global bond prices surged, pushing their yields to multi-month lows, supported by expectations of easier monetary policy from the European Central Bank.

MSCI's broadest index of Asia-Pacific shares outside Japan .MIAPJ0000PUS rose 0.15 percent, led by gains in Hong Kong .HSI and Singapore .FTSTI shares and hitting one-year highs for the fifth time in the last six sessions.

Japan's Nikkei share average .N225 erased much of earlier losses to stand flat.

On Wall Street, S&P500 index .SPX snapped a four-session winning streak on Wednesday to end slightly below a record closing high hit on Tuesday, though it hit an intraday record high.

Even as share prices stayed at elevated levels, however, bond yields fell sharply, as investors prepare for the ECB's easing.

German 10-year Bund yields DE10YT=TWEB fell to a one-year low of 1.285 percent and periphery euro zone debt yields also tumbled, with Spanish debt yield ES10YT=TWEB hitting a record low of 2.823 percent.

"In the past, when share prices rise, bond prices fell. But that no longer applies. We are likely to see a combination of high share prices and low bond yields," said Daisuke Uno, chief strategist at Sumitomo Mitsui Banking Corp.

An unexpected increase in German unemployment and a deceleration in the euro zone money supply on Wednesday reinforced expectations that the ECB will introduce further stimulus at its meeting on June 5.

ECB executive board member Yves Mersch ramped up the rhetoric, saying the next 5 meeting could yield a combination of policies to tackle low inflation and low credit growth, but the timing of implementation could vary.

Measures being prepared by the ECB are likely to include cutting the deposit rate into negative territory - effectively charging banks to hold cash at the ECB overnight - and bank loans aimed at helping to increase lending to smaller companies.

"The ECB's easing is the biggest thing for markets for now. Nobody at this point clearly knows the ramifications of negative rates. In our dealing room, we have had heated debate but got no conclusion," said a proprietary trader at a major Japanese bank.

"But at least it's something that will help bring down long-term bond yields," he added.

The prospect of radical easing spilled over to other markets, with the 10-year Treasuries yield falling to 2.44 percent from 2.52 percent, hitting its lowest level in almost 11 months.

U.S. Treasuries were also supported by expectations that the Federal Reserve will be slow in raising rates even after it has stopped asset purchases.

The Japanese government bond yield broke out of months-old range to hit one-year low of 0.560 percent JP10YTN=JBTC.

The prospect of ECB easing also pinned the euro EUR= near a 3 1/2-month low of $1.3587 hit on Wednesday. It last stood at $1.3607.

The British pound was also fragile, hit in recent days by a combination of slightly weaker economic data and inklings of nascent political risk to Britain's long-term status-quo after the European election.

The pound fell to a one-month low of $1.6697 GBP=D4 on Wednesday and last stood at $1.6723.

As a result, the dollar index .DXY edged near its April 4 peak of 80.599, last standing at 80.468.

The dollar eased to 101.65 yen JPY= as U.S bond yields came down, shrinking the dollar's yield advantage over the yen.

As the dollar gained, gold XAU= slipped to lowest level in almost four months, trading at $1,258.10 an ounce, licking its wounds after suffering its biggest daily fall since mid-December on Tuesday.

(Editing by Eric Meijer)