Dollar gains on U.S. tax cut progress; Brexit deal eyed

By Swati Pandey

SYDNEY (Reuters) - The U.S. dollar bounced to a two-week top on Monday and S&P futures jumped as traders marked the passage of a Senate tax bill over the weekend, a move that raises the risk of more aggressive rate hikes in the world's largest economy.

Pointing to a firm start for European shares, FTSE futures (FFIc1) were up 0.7 percent.

Traders will be focusing their attention on a meeting scheduled for British Prime Minister Theresa May and EU Commission President Jean-Claude Juncker to work on a Brexit deal.

The euro slipped 0.15 percent, while the British pound was steady amid media reports that an agreement was near on the terms of the Brexit divorce.

Asian shares started the week with a whimper.

MSCI's broadest index of Asia-Pacific shares outside Japan (MIAPJ0000PUS) hovered near more than one-month lows on fears U.S. policy tightening could suck liquidity from emerging markets and derail global growth.

The greenback jumped 0.7 percent to as far as 112.98 yen, the highest since Nov. 17 on expectations of faster U.S. rate hikes as fiscal policy was set to be eased even while the U.S. economy was running at or near full employment.

A U.S. tax cut could also boost corporate profits and lead to a slew of share buy-backs. U.S. stock markets have already rallied for months on hopes that Washington would provide significant tax cuts for corporations.

Indeed, EMini S&P stock futures (ESc1) jumped 0.6 percent on Monday.

U.S. healthcare shares are also set to rally after drugstore chain operator CVS Health Corp (N:CVS) said on Sunday it had agreed to acquire U.S. health insurer Aetna Inc (N:AET) for $69 billion.

China's SSE (LON:SSE) Composite (SSEC) slipped 0.2 percent, while Australian shares (AXJO) eased 0.1 percent and Japan's Nikkei (N225) fell 0.5 percent. Among gainers were Hong Kong's Hang Seng index (HSI) and South Korea's KOSPI (KS11).

"If you do see a U.S. fiscal stimulus in 2018 all its likely to do is accelerate the need for further U.S. policy tightening which indirectly could be negative for emerging markets," said Chris Weston, Melbourne-based chief market strategist at IG.

"If real yields trend higher and the U.S. dollar rises further that would put emerging markets and Asia on the back burner," Weston added.

(For graphic on Equities and bonds total return index, click http://reut.rs/2AShSHQ)

Yields on two-year notes (US2YT=RR) rose to 1.806 percent, while those on the 10-year bond climbed to 2.4026 percent.

The dollar index (DXY) added 0.3 percent against major currencies.

Bitcoin (BTC=BTSP) hovered close to an all-time high of $11,800 set on Sunday after the U.S. derivatives regulator allowed CME Group (O:CME) and CBOE Global Markets (O:CBOE) to list bitcoin futures.

The cryptocurrency was last trading around $11,375 on the Luxembourg-based Bitstamp exchange.

In commodity markets, U.S. crude (CLc1) was off 40 cents at $57.96. Brent crude (LCOc1) slipped 31 cents to $63.42, drifting away from a near 2-1/2 year peak of $64.65 touched last month.

Spot gold was off 0.45 percent to $1,274.4 an ounce.