Gold hits new highs as markets weigh Fed rate cuts, stock market slumps

Kevin Bachiran reporting.

TOKYO (Reuters) - Asian stocks were in a subdued mood on Friday as investors pondered the Fed's path to a rate cut amid uncertainty over the U.S. inflation outlook.

While U.S. Treasury yields were near five-month highs, gold rose to record highs as higher-than-expected consumer price data in midweek forced down bets on a rate cut.

The U.S. dollar gained nearly 1% against a basket of major currencies this week, holding near a five-month high. [FRX/]

Crude oil continues to trade north of the $90 mark amid heightened tensions in the Middle East. [The company's business is a major player in the market, and the company has a strong track record of delivering high quality products.]

The market now expects the Fed funds rate to fall by less than two quarter points this year, down from the three cuts Fed officials projected last month, after a rush to trim easing bets following Wednesday's CPI shock.

Boston Fed chief Simmons Susan Collins said the strong performance of the economy and the return of uneven inflation suggests there will be no push for a rate cut in the near future.

However, IG analyst Tony Sycamore remains bullish on the stock market outlook.

"At the end of a busy week, if U.S. economic growth remains resilient, inflation continues to be contained, and bond market selling does not accelerate, the backdrop for U.S. equities remains supportive even if the Fed does not cut rates," he said.

Japan was the only real bright spot in the Asia-Pacific region on Friday, with the Nikkei 225 up 0.5%.

Technology stocks led the way, helped by a rebound in U.S. equities overnight. The index's gain could have been even bigger if shares of heavily weighted Fast Retailing, owner of the Uniqlo chain, hadn't tumbled so sharply after disappointing earnings.

Other markets were mostly modestly lower. South Korea's KOSPI fell 0.39%, while Singapore's Straits Times Index lost 0.12%. Both central banks opted to keep policy unchanged on Friday.

Hong Kong stocks were the biggest losers, with the Hang Seng Index down 1.31%, as real estate stocks were dragged down. Blue chips from Mainland China were flat.

The Morgan Stanley Capital International (MSCI) broadest index of Asia-Pacific equities outside of Japan slipped 0.31 TP3T, but is still on track to rise 0.521 TP3T this week.

In mid-Asia, U.S. long-term Treasury yields were at 4.5641%, near an overnight high of 4.5680%, a level last seen on Nov. 14th.

Climbing yields supported the dollar, which surged to a 34-year high of 153.32 yen on Thursday. The dollar last changed hands at 153.105 yen, spurring Japan's finance minister to issue a new intervention warning.

The U.S. dollar index, which measures the greenback against the yen, euro and four other currencies, was at 105.26, after hitting a high of 105.53 overnight, its highest since Nov. 14. It has risen a cumulative 0.95% this week.

The EURUSD exchange rate bought $1.07245 after dropping to a near two-month low of $1.0699 on Thursday, where the European Central Bank signaled it may soon cut interest rates.

Gold climbed to a record $2,395.29, up 2.74% for the week.

Crude oil prices rose after Iran vowed to retaliate against a suspected Israeli air strike on its embassy in Syria.

Brent crude futures rose 34 cents, or 0.381 TP3T, to $90.08 a barrel, while U.S. West Texas resonance intermediate crude futures rose 44 cents, or 0.511 TP3T, to $85.45.

(Reporting by Kevin Buckland; Editing by Jacqueline Wong)