Asian markets advance as focus turns to US Fed boss

With hopes for a big interest rate cut fading focus is on Federal Reserve boss Jerome Powell's congressional testimony this week

TOKYO, July 10 (Reuters) - The dollar neared a three-week high against a basket of major currencies on Wednesday as investors continued to unwind bets on deep US interest rate cuts, pushing Treasury yields higher.

Expectations for a 50-basis-point rate cut this month have evaporated, but investors still expect a 25 bps cut.

In prepared remarks to a congressional committee, Powell contrasted the Fed's "baseline outlook" of continued USA growth against a considerable set of risks - including persistently weak inflation, slower growth in other major economies, and a downturn in business investment driven by uncertainty over just how long the Trump administration's trade war with China and other countries will last and how intense it will become.

Trading is expected to be subdued ahead of Powell's testimony to the US Congress on Wednesday, which will give clues on the near-term outlook for monetary policy. South Korea's Kospi gained 0.4% to 2,059.44. NZD/USD had a quick pop lower in Asian trading to 0.6568 on a large sell order before recovering to stick around 0.6590-10 levels in Europe.

Wall Street had been duly circumspect, with the Dow ending down 0.08%, while the S&P 500 added 0.12% and the Nasdaq 0.54%.

Futures markets still overwhelmingly believe the Fed will cut later this month but expectations have shifted to a smaller interest rate decrease than had been contemplated prior to the jobs data. Hong Kong's Hang Seng rose 0.3% to 28,204.69, while the Shanghai Composite fell 0.4% at 2,915.30.

"Unless you get some huge red flags from the testimony over the next two days, we are going to enter into a more accommodative environment", she told Bloomberg TV.

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In Asia, there was a wide sell-off in stocks, with MSCI's broadest index of Asia-Pacific shares outside Japan losing 1.4 percent and China's blue-chip CSI300 index down 2.32 percent, its biggest daily loss since May 17. Last year, Fed officials raised rates four times, in part to stave off the risk of high inflation and in part to try to ensure that they would have room to cut rates if the economy stumbled.

He is most unlikely to dampen speculation of a 25 basis points reduction in United States interest rates to the 2.00%-2.25% range from the current 2.25%-2.50% when the rate-setting Federal Open Market Committee ends its next meeting on July 31.

"Fed Powell's testimony will be scrutinized for both his views on the economic situation and guidance in terms of any upcoming moves". USA crude was up 82 cents to $58.65 a barrel.

In commodity markets, Brent crude futures were down 0.09 percent to $64.18.

CURRENCIES: The dollar rose slightly to 108.90 Japanese yen from 108.82 yen.

Against the dollar, the euro was steady at $1.1208 after hitting $1.1194, which was the lowest in almost three weeks.

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