GLOBAL MARKETS-Asia stocks slip as safety favoured

By Wayne Cole SYDNEY, July 6 (Reuters) - Markets got off to a hesitant start Monday as investor doubts on the staying power of a global recovery kept Asian stocks soggy and currencies subdued ahead of a much-expanded Group of Eight meeting this week. With risk out of favour for the moment, Japan's Nikkei fell 1.38 percent and the MSCI index of Asia ex-Japan eased 0.41 percent. Indian shares fell more than 2 percent and bonds yields rose as India's finance minister outlined a stimulative budget that proposes a bigger-than-expected deficit. . Futures prices also pointed to a soft start for Europe. The air of caution kept safe-havens like the yen and sovereign bonds supported, while pressuring commodity prices and leveraged plays. Crude oil futures were down near five-weeks lows below $65.00 a barrel. Investors were still smarting from last week's dismal U.S. payrolls report which put a question mark over the recovery there, and thus across the globe. "The payrolls result doesn't spell the end of the global sharemarket recovery," said Craig James, chief economist at CommSec in Sydney, noting that forward-looking indicators were more encouraging. One such indicator should be the ISM reading of the giant U.S. services sector due later on Monday, which is expected to show a rise to 46.0 in June from 44.0 the month before. "But what the payrolls result does signify is that the U.S. economic recovery will be U-shaped, and very likely to be a very flat U," said James. Stock bulls had been hoping for something more "V"-shaped and the disappointment was clear in Thursday's 2.9 percent drop in the S&P 500. Having skipped a session on Friday for the Independence Day holiday, S&P 500 stock futures were off 0.78 percent in Asia at 886.30. That implied the cash index was perilously close to breaking major chart support. "The "neckline" of this pattern comes in at 886 and this is also very close to the much-watched 200-day moving average," noted analysts at UBS in a note. "A break and close through these levels would be bearish for stocks and bullish for our fond leanings toward Treasuries." G8 TALKS DOLLARS Investors were also wary ahead of the Group of Eight summit in L'Aquila, Italy on July 8-10, which has been expanded to include China and a host of developing nations. China last week floated the idea of discussing the U.S. dollar's place as the sole international reserve currency, causing a brief dip in the currency. The G8 pushed back, however, with a source telling Reuters there was no appetite for such a momentous change. "There is pretty broad consensus with the G8 that this is not the time to experiment with reserve currencies, however attractive it might seem," the source said. China also seemed keen to reassure Washington. Speaking to reporters in Rome on Sunday, Chinese Vice Foreign Minister He Yafei said: "The U.S. dollar is still the most important and major reserve currency of the day, and we believe that that situation will continue for many years to come." That vote of confidence helped the U.S. dollar inch higher on the euro on Monday, though the yen made ground across the board. For bond markets, supply will again loom large this week as the U.S.

Treasury tests investor appetite with $73 billion in three-, 10- and 30-year paper. The last batch of Treasury auctions drew surprisingly strong demand, crucially from foreign central banks who now hold almost $2 trillion of U.S.

government debt. However, traditionally central banks have been less keen on debt of 10-years or more and markets will be anxious in case demand at any of the tenders falls short of expectations. Yields on 10-year notes were little changed from Thursday at 3.50 percent. (Editing by Neil Fullick) (([e-mail]; [phone]; Reuters Messaging: [e-mail])) (If you have a query or comment on this story, send an email to [e-mail]) ((For the state of play of Asian stock markets please click on: )) * For Reuters Global Investing Blog, click on http://blogs.reuters.com/globalinvesting * For the MacroScope Blog, click on http://blogs.reuters.com/macroscope * For Hedge Fund Blog, click on http://blogs.reuters.com/hedgehub Keywords: MARKETS GLOBAL (If you have a query or comment on this story, send an email to [e-mail]) COPYRIGHT Copyright Thomson Reuters 2009. All rights reserved.

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