Asian shares near one-year high, dollar slips after weak US data

Asian shares held near one-year highs on Wednesday as investors pared expectations slightly for a Federal Reserve interest rate increase following weak US productivity data, which drove the dollar and Treasury yields lower.

MSCI's broadest index of Asia-Pacific shares excluding Japan rose 0.1%, staying near a one-year high hit the previous day. Japan's Nikkei fell 0.6% on the yen's gains.

Wall Street eked out gains on Tuesday following a strong session for European stock markets, with Germany's DAX index jumping 2.5% to its highest of 2016 due to strong earnings from reinsurer Munich Re and telecoms group Altice.

MSCI's all-country world index covering 46 markets rose 0.5% on Tuesday to touch its highest level since late August 2015.

"Following strong US payrolls data last week, we are in a sweet spot where the US economy seems to be doing okay while the chances of a near-term Fed rate hikes are still relatively small," said Hirokazu Kabeya, chief global strategist at Daiwa Securities.

"Earnings in the US, Europe and Japan are not bad. So we may be seeing something of a 'Goldilocks' market globally," he added.

US bond yields fell after a weak report on US productivity, with the 10-year notes yield dipping to 1.538% from Monday's two-week high of 1.616%. "Low US productivity growth could suggest the third quarter growth can't be fantastic. That in turn would mean the Fed will not need to raise rates," said Masahiro Ichikawa, senior strategist at Sumitomo Mitsui Asset Management.

Additionally, the Bank of England's reverse bond auction failed to meet its target on Tuesday, highlighting the scarcity of investors willing to sell from a quickly dwindling pool of long-term bonds with positive yields.

The 10-year UK gilts yield hit a fresh record low of 0.563% after the BoE fell 52 million pounds ($68 million) short of its target to buy more than 1 billion pounds of long-dated UK government debt, the first time it failed to find enough sellers since it started its quantitative easing programme in 2009.

The British central bank announced last week that it would be increasing its bond buying in addition to cutting interest rates in the latest effort to stimulate the country's economy.

The British pound remained under pressure, having hit one-month low of $1.2956 on Tuesday as a Bank of England policymaker said the central bank will probably have to loosen monetary policy further if the UK's economy worsens.

Sterling last stood at $1.3051. The dollar was weak against most other currencies following soft US data. It fell to 101.55 yen, giving up all its gains so far this week while the euro rose to $1.1136, extending its recovery from Friday's one-week low of $1.1046.

Oil prices slipped after a surprise US crude stockpile build rekindled worries about a persistent global petroleum glut. Brent futures stood at $45.04 per barrel.