By Paulina Duran and Chibuike Oguh
SYDNEY/NEW YORK, Jan 12 (Reuters) - Stocks took a breather on Tuesday, easing from record highs as political turmoil in Washington and rising coronavirus cases gave pause, though a selloff in U.S. Treasuries extended as investors reckon on a big spending government.
The yield on benchmark U.S. government 10-year debt US10YT=RR , which rises when prices fall, gained as much as 2.4 basis points to a fresh ten-month high of 1.1580%. US/
MSCI's broadest index of Asia-Pacific shares outside Japan .MIAPJ0000PUS fell 0.3% after touching an all-time high on Monday, led by a 1.6% drop in South Korea as investors took some profit from a soaring Kospi .KS11 . .KS
Drugmakers lifted Japan's Nikkei .N225 to a fresh three-decade high after reports of another effective COVID-19 treatment, though the index eased to flat by lunchtime. .T
S&P 500 futures ESc1 were steady in Asia on Monday. Strong inflows helped Chinese blue chips .CSI300 1% higher. .SS
A resurgent U.S. dollar clung to four days of gains against other major currencies, holding the euro EUR= and yen JPY= close to multi-week lows. FRX/
"We've seen a very strong week or so (in equities) and I think the lower moves we are seeing are a bit of profit-taking," said Chad Padowitz, chief investment officer at Talaria Capital in Melbourne.
"I don't think higher interest rates or inflation expectations are being an area of concern for equities at the moment."
Political uncertainty tempered the mood somewhat as Democrats introduced a resolution to impeach U.S. President Donald Trump, accusing him of inciting insurrection following a violent attack on the Capitol last week. the Nasdaq .IXIC led modest losses on Wall Street, falling 1.3% as investors sold tech giants who have taken actions against Trump and his supporters. .N
Twitter TWTR.N tumbled 6.4% on Monday after it permanently suspended Trump's account last Friday.
SHORT SQUEEZE
The U.S. yield curve is steepening because investors expect a big-spending, big-borrowing United States government after Democrats last week won control of both houses of Congress.
The yield on U.S. 10-year debt is up 23 basis points already this year and the spread between the two-year and 10-year Treasury yields US2US10=TWEB is now wider than 100 basis points for the first time since July 2017.
Flows from the huge and sudden selloff have supported equities while tapping the brakes on short dollar positions. Renewed focus on inflation expectations will have investors closely watching U.S. CPI data due on Wednesday.
Meanwhile, the dollar index =USD has bounced 1.5% from last week's nearly three-year low as investors trim what have become very large short positions.
"We shift towards being net neutral on the dollar for now, pending how Treasury yields evolve in the coming sessions," said OCBC Bank strategist Terence Wu in a note to clients.
"Our bias is for the 10-year yield to experience some pull-back ... we will more concerned should the 10y yield breach 1.25-1.30% levels, and be on a clear path towards 1.60%. That may be the signal for a more sustained dollar strengthening."
Elsewhere, investors are expecting guidance on the extent to which executives see a rebound in 2021 earnings and the economy from results and conference calls from JP Morgan, Citi C.N and Wells Fargo (NYSE:WFC) WFC.N on Friday. crude CLc1 was steady at $52.25 per barrel and Brent LCOc1 was flat at $55.64. O/R
Gold XAU= which has been sold as U.S. yields rise because it pays no interest, steadied at $1,850 an ounce. GOL/
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