By Swati Pandey
SYDNEY, March 24 (Reuters) - Asian shares hit a two-week low on Wednesday, oil weakened further and the dollar neared four-month highs as coronavirus lockdowns in Europe and potential U.S. tax hikes hit risk appetite, leading to a flight to safety.
MSCI's broadest index of Asia-Pacific shares outside of Japan .MIAPJ0000PUS was off 1% after falling 0.9% on Tuesday. It went as low as 676.46 points, a level last seen on March 9.
The index has had a disappointing run in March after five straight months of gains, as risk assets were earlier spooked by fears inflation will pick up at a faster-than-expected pace led by successful coronavirus vaccine rollouts and massive U.S. fiscal stimulus.
Japan's Nikkei stumbled 1.8% .N225 while South Korea's KOSPI .KS11 slipped 0.5%. Chinese shares were in the red for a second day with the blue-chip CSI300 index .CSI300 down 1.2%. Hong Kong's Hang Seng .HSI skidded 1.7%.
On Wall Street overnight, the Dow Jones Industrial Average .DJI fell 0.94%, the S&P 500 .SPX lost 0.76% and the Nasdaq Composite .IXIC dropped 1.12%.
"The combination of increasing lockdowns in much of Europe, and some risk reduction in the EM space, led to a risk-off day where Treasuries rallied on the back of a flight-to-quality bid," John Briggs, global head of strategy for NatWest wrote in a note to clients.
Germany extended its lockdown to April 18. A U.S. health agency said the AstraZeneca (NASDAQ:AZN) Plc AZN.L vaccine developed with Oxford University may have included outdated information in its data, further fueling investor concerns over the recovery. unlike the day before, the reduction in risk appetite was the driver today, which also led to broad based USD strength in a flight-to-quality move, not just against EM but also against most of the majors," Briggs added.
Adding to investor woes, Treasury Secretary Janet Yellen told Congress on Tuesday the U.S. economy remained at risk. currencies, the dollar index approached a four-month top of 92.506 against a basket of most major currencies. =USD FRX/
The euro EUR= edged toward a four-month trough below $1.18355 - trading as low as $1.18360 - after Germany extended its lockdown. The safe-haven yen JPY= was broadly stronger, and Australia's dollar AUD= - considered a liquid proxy for risk - weakened further on Wednesday.
Benchmark 10-year notes US10YT=RR rose 19/32 in price to yield 1.6153% after Federal Reserve Chair Jerome Powell downplayed the risk of inflation.
U.S. manufacturing data was due later on Wednesday and Powell was expected to give the same prepared testimony to a Senate banking panel. flight to safety hit commodity prices, though oil prices edged higher on Wednesday as investors looked for bargains. Gains were capped, however, as lockdowns in Europe and a build in U.S. crude stocks curbed risk appetite and raised oversupply fears. O/R
Brent crude futures LCOc1 fell 16 cents to $60.62 a barrel, after tumbling 5.9% and hitting a low of $60.50 on Tuesday. West Texas Intermediate (WTI) crude futures CLc1 slipped 21 cents to $57.55, having lost 6.2% the previous day.
Safe haven gold was higher at $1,731.2 an ounce.