The euro bounced on Monday, though its gains appeared short-lived as major European powers continue to haggle over a fresh rescue package for Greece, while Asian stocks extended a seven-week losing streak on fears the global recovery is losing steam. Asian stocks outside Japan fell 0.6% to a two and a half month low as weak global economic data and fresh worries about Greece weighed on investor confidence. With the Federal Reserve's USD 600 billion bond purchase program set to expire by the end of June, investors have sought refuge in safe-haven assets like US Treasuries even as politicians in Washington wrangle over extending its debt ceiling and the world's biggest economy lurches towards a technical default. That kept the dollar near a one-week high against a basket of currencies and supported around 80 versus the yen , a day before a Bank of Japan meeting where it will consider expanding a loan program aimed at supporting certain industries, according to sources. The euro edged higher after falling by nearly 2% last week, its worst weekly performance since mid-May, but its gains are expected to be limited by disputes among policymakers ahead of a meeting next week at which euro zone leaders are due to finalise a new rescue package for Greece. It was up slightly at USD 1.4347 after dropping as far as USD 1.4285 on EBS in very early Asia trade and down from a one-month peak of USD 1.46966. Traders cited broad short-covering kicking in after players failed to chase the euro's early drop. Ironically, the single currency's latest bout of weakness comes after ECB President Jean-Claude Trichet last week signaled a July rate hike, an indication that market players are expecting fewer rate increases after that. BEYOND QE2 As the Fed's bond purchase plan winds down to a close with its last purchase of USD 50 billion of Treasuries this week, investors expect stocks, bonds, gold and the euro to weaken subsequently, according to a Reuters poll of 64 analysts and fund managers last month. The end of "Quantitative Easing 2", or "QE2" as it is more popularly known, could reduce the flood of money that has travelled to Asia in recent months searching for higher yields and forcing the region's central banks to tighten monetary policy. Data from fund tracker EPFR Global showed emerging market bond funds received new weekly money totaling USD 1.4 billion up to June 8, an eight-month high. Hard currency bond funds attracted USD 726 million, the highest in over three years. Anticipating a slowdown in incremental flows, credit spreads widened slightly on Monday and Asian stocks traded on a weaker note though volume is expected to be subdued with holidays in Australia and before a slew of US economic data this week. The end of the final series of government bond purchases that marks the last phase of the US plan launched in November 2010 does not mean the stimulus will come to a complete stop. The Fed will reinvest maturing securities, mainly mortgage-related debt, which analysts predict will run at USD 12 billion to USD 16 billion per month. Shares in Tokyo fell 0.8%, hurt by weak machinery data for April in a sign that reconstruction-related demand after Japan's massive March 11 earthquake has been slow to materialise. Among the principal laggards on Monday were Chinese shares, which fell by more than 1% on concerns over the restructuring of local government debt and fears of further policy tightening to curb inflation. The MSCI index of Asia Pacific shares outside Japan extended losses by 0.6% after falling for seven consecutive weeks. The weakness in stocks helped bonds with yields on US 10-year notes holding below 3%. US crude's front month futures was steady around USD 99 a barrel and Brent was near USD 119 per barrel. Tags: euro, Greece, Asian stocks , Federal Reserve, Quantitative Easing , MSCI index , US crude

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