* Asian stock markets : https://tmsnrt.rs/2zpUAr4
* S&P 500 and Nasdaq futures start year on firm note
* Asia liquidity lacking with Japan on holiday
* Bonds well bid as market prices out Fed hikes
* US payrolls, Fed's Powell feature later in the week
By Wayne Cole
SYDNEY, Jan 2 (Reuters) - Asian shares crept cautiously higher on the first trading day of the new year as early gains in U.S. stock futures spoke of some improvement in risk appetite.
MSCI's broadest index of Asia-Pacific shares outside Japan .MIAPJ0000PUS edged up 0.14 percent, as E-Mini future for the S&P 500 ESc1 firmed 0.5 percent and Nasdaq futures NQc1 0.7 percent. Japan's Nikkei .N225 was closed for a holiday
Wall Street has benefited from the merest hint of progress on the Sino-U.S. trade standoff, though details were still notably lacking. .N
There was some hope of progress on the U.S. government shutdown after President Donald Trump invited Republican and Democratic congressional leaders to a border security briefing.
However, it was not clear who would attend the meeting, which was set for later on Wednesday, or whether a deal would even be discussed. looming are a closely-watched survey on U.S. manufacturing due on Thursday, followed by the December payrolls report on Friday.
Federal Reserve Chairman Jerome Powell will have the chance to comment on the economic outlook when he participates in a joint discussion with former Fed chairs Janet Yellen and Ben Bernanke on Friday.
While the Fed is still projecting two or more rate rises this year, investors are more focussed on slowing global growth and the disinflationary pulse from sliding oil prices.
Fed fund futures 0#FF: have all but priced out any hike for this year and now imply a quarter point cut by mid-2020.
The Treasury market also assumes the Fed is done and dusted. Yields on two-year paper US2YT=RR have tumbled to 2.49 percent, just barely above the cash rate, from a peak of 2.977 percent in November.
Yields on 10-year notes US10YT=RR have dived to their lowest since last February at 2.69 percent, making a bullish break of a major chart level at 2.717 percent.
The spread between two- and 10-year yields has in turn shrunk to the smallest since 2007, a flattening that has been a portent of recessions in the past.
"What is clear is that the global synchronised growth story that propelled risk assets higher has come to the end of its current run," the Treasury team at OCBC Bank wrote in a note.
"Inexorably flattening yield curves and, now, partially inverted U.S. yield curve have poured cold water on further policy normalisation going ahead."
The breakneck drop in yields has been a headwind for the U.S. dollars. Against a basket of currencies .DXY it was stuck at 06.108 having fallen for two weeks straight.
The euro was firm at $1.1462 EUR= and poised for another attack on resistance in the $1.1485/1500 zone, a band that has held since late October.
Against the yen, the dollar was last trading at 109.56 JPY= and near its lowest since June last year.
The pullback in the dollar and the chance of no more U.S. rate hikes has been a boon for gold. The precious metal fetched $1,281.41 an ounce XAU= to be close to a six-month peak.
Oil prices started with a tentative bounce after a punishing 2018. U.S. West Texas Intermediate crude (WTI)futures slumped nearly 25 percent last year, while Brent lost 19.5 percent.
On Wednesday, U.S. crude futures CLc1 had nudged up 48 cents to $45.89 a barrel, while Brent LCOc1 was yet to trade.
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https://tmsnrt.rs/2zpUAr4 Asia-Pacific valuations
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