GLOBAL MARKETS-Asia stocks get lull in selling, sentiment skittish
* Stocks trying to stabilise as panic selling eases for now
Safe-haven flows nudge US yields lower, benefit yen and Swiss franc
* Fed minutes anxiously awaited, could trigger more capital flight
By Wayne Cole
SYDNEY, Aug 21 (Reuters) - Asian markets were getting a much-needed reprieve on Wednesday as U.S. borrowing costs eased and investors everywhere hunkered down for minutes of the Federal Reserve's July policy meeting -- though some feared they might only sow more confusion.
Japanese and Korean shares both started marginally firmer after steep falls on Tuesday, while Asian currencies were steadier as the recent exodus of Western funds abated.
MSCI's broadest index of Asia-Pacific shares outside Japan was flat after four straight sessions of losses took it to the lowest since July 9.
Japan's Nikkei edged up 0.6 percent, aided perhaps by strong words from Bank of Japan Governor Haruhiko Kuroda who declared he would not hesitate to expand the bank's already massive asset buying campaign if the economic outlook darkened.
The lull in selling was partly due to a pullback in U.S. Treasury yields, with yields on the 10-year note easing to 2.83 percent, from Monday's peak of 2.90 percent.
The inexorable rise of U.S. borrowing costs has been a headache for emerging market countries which had come to rely on cheap foreign money to support domestic demand and fund current account deficits.
Ironically, though, the pullback in yields was largely caused by the very turmoil in emerging markets which had grown alarming enough to prompt safe haven flows to Treasuries.
However, the longer term fate of yields rests on when and how the Fed scales back its stimulus plans, and that remains highly uncertain. Most analysts assume it will begin tapering in September, but at what pace is open to question.
There is also a chance the Fed will try to reassure markets that an actual tightening in policy is still far distant, perhaps by lowering the level at which unemployment would warrant consideration of a rate rise.
Unfortunately the Fed itself is divided on all this and the minutes of its last meeting are likely to show many competing voices, perhaps leaving the market as confused as ever.
HEADING NORTH FOR THE SUMMER
Still, investors are convinced that the Fed will have to start tapering at some point and that has made it much harder for emerging market countries to attract foreign funds.
"Weakness in several key high-yielding emerging markets is overflowing to the rest," noted analysts at Barclays. "Higher volatility will benefit countries with better balance sheets and low currency vulnerability."
As a result they recommend a North-South rotation strategy -- going long in Korea, China and Singapore, and underweight in Malaysia, Thailand and Indonesia.
The Indian rupee cratered to a record low of 64.13 per dollar on Tuesday, while Indonesia's rupiah hit its lowest since 2009. Late Tuesday, India's central bank took steps to support the beaten-down bond market, in moves that might just help prop up the rupee.
Among the major currencies, safe-haven flows were tending to favour the yen and Swiss franc over the U.S. dollar.
Traders also reported much talk that European investors were repatriating funds from emerging markets, which was one reason the euro spiked higher across the board.
The single currency was up at $1.3420, having touched a six-month high of $1.3452 in New York. The dollar also slipped to 97.50 yen and took a sharp spill on the Swiss franc to 0.9172.
Commodities markets were marking time before the Fed release, with copper futures a shade lower at $7,305.00 a tonne. Spot gold likewise edged back to $1,368.65 an ounce and off a two-month high set on Monday.
Brent crude prices was steady at $110.15 a barrel, supported by the loss of Libya's oil exports as well as concerns that continuing unrest in Egypt could disrupt supply. U.S. oil for October delivery added 7 cents to $105.19.