By Ankur Banerjee

SINGAPORE (Reuters) - Asian stocks inched higher and the dollar held steady on Tuesday ahead of a key U.S. inflation report that could help shape the Federal Reserve's rates outlook and determine the timing of interest rate cuts.

Bitcoin remained strong after crossing $50,000 for the first time in over two years, thanks to inflows into exchange traded funds backed by the digital asset. It was last at $50,0097 in Asian hours.

MSCI's broadest index of Asia-Pacific shares outside Japan was 0.15% higher in early trading. The index is down 3% so far in the year.

Japan's Nikkei on the other hand has carried on from last year and is up 12% for the year. On Tuesday, the index rose 1.7% to hit a fresh 34-year high on the back of a weak yen which is nearing the closely-watched 150 per dollar level.

China's financial markets are closed for the Lunar New Year holiday and will resume trade on Monday, Feb. 19, with Hong Kong markets due to resume on Feb. 14, leaving trading in Asia subdued and taking cues from the Wall Street.

On Monday, the Nasdaq slipped in the afternoon session after briefly surpassing its record closing high from November 2021. The benchmark S&P 500 closed lower but remained just above the 5,000-point level it crossed on Friday. E-mini futures for the S&P 500 fell 0.16%. [.N]

Investor attention this week will be on crucial reports on January's U.S. Consumer Price Index (CPI), due later in the day, and Producer Price Index, scheduled to be released on Friday.

A slew of recent data, led by strength in the labour market, has underlined the resilience of the U.S. economy and pushed traders to scale back expectations of early and deep interest rate cuts from the Fed.

Markets have all but chalked off chances of a rate cut in March, with traders pricing in a 13% chance of an easing compared with 77% a month earlier, the CME FedWatch tool showed.

Economists polled by Reuters expect CPI to rise 2.9% on a year-on-year basis, down from 3.4% in the previous month, with annual core CPI inflation also expected to slow to 3.7% in January from 3.9% a month earlier.

However, there is risk of an upside surprise, which could nudge yields higher and further strengthen the dollar, according to Charu Chanana, head of currency strategy at Saxo.

"May rate cut probability is around 70%, and there appears room to push that further to June with markets remaining sensitive to hawkish surprises for now."

Traders are still pricing in 111 basis points of cuts this year versus 75 bps of easing projected by the Fed.

The yield on 10-year Treasury notes was at 4.172%. The dollar index, which measures the U.S. currency against six rivals, was little changed at 104.16.

The Japanese yen, which is sensitive to U.S. rates, was last at 149.38 per dollar, not far from the closely-watched 150 level that analysts said would likely trigger further jawboning from Japanese officials in an attempt to support the currency. [FRX/]

In commodities, U.S. crude rose 0.03% to $76.94 per barrel and Brent was at $81.99, down 0.01% on the day. [O/R]

By Marc Jones

LONDON (Reuters) - Rating agency Fitch fired a warning shot across Britain's bows on Monday, urging the country's government to keep a tight rein on spending at its upcoming budget or risk another downgrade.

Fitch has an AA- grade and a negative outlook - effectively a downgrade warning - on its UK rating and is awaiting the budget next month where the struggling Conservative government is flagging possible tax cuts ahead of an approaching election.

"We estimate that the UK general government deficit rose to 6% of GDP in 2023 from 4.7% of GDP in 2022 and above the 2.7% ‘AA’ category median," Fitch said, adding that government debt of just over 100% of GDP now was "almost double" the median.

Focus for the budget will be on whether the government's new policy measures - which will come against a backdrop of easing of inflation, financing costs and potentially net borrowing - help reduce Britain's debt level.

"Policy choices are key to reducing UK fiscal uncertainty," Fitch said, highlighting that its next planned review of its UK rating was a couple of weeks after the March 6 budget on March 22.

"Implementing the fiscal consolidation projected after the election would entail real cuts in unprotected spending that could be politically challenging," Fitch said.

By David Lawder

WASHINGTON (Reuters) - The U.S. federal budget deficit fell sharply in January to $22 billion as receipts hit a record for that month, partly because tax refunds fell after the Internal Revenue Service cleared a backlog of pandemic-delayed tax returns, the U.S. Treasury said on Monday.

The deficit last month was $17 billion, or 43%, less than the $39 billion deficit in January 2023. Outlays for the month grew 3% to $499 billion, while receipts jumped 7% to $477 billion.

For the first four months of the fiscal year, the deficit rose $72 billion, or 16%, to $532 billion as interest costs on the national debt rose. The Treasury said both receipts and outlays were records for the period, with receipts up $112 billion, or 8%, to $1.585 trillion, and outlays up $184 billion, or 10%, to $2.117 trillion.

This January's comparison with a year ago was also helped by the $36 billion bailout of a Teamsters union pension fund in January 2023, as no similar large one-time outlays were recorded this year.

Individual tax refunds, which are deducted from receipts, were $15 billion lower in January than during January 2023. The IRS last year had adopted new scanning technology to enable it to process paper returns more quickly. Individual withheld receipts in January, benefiting from strong employment trends, were up $20 billion, or 7%, from a year earlier.

By Scott Murdoch

SYDNEY (Reuters) - South Korean companies have issued a record volume of dollar bonds so far this year, as they lock in funding to pay for overseas expansion plans and investors search for an alternative given the dearth of Chinese bond issuance.

More than $15 billion worth of bonds have been issued since Jan. 1, according to LSEG data, a 30% increase on the same time last year.

January in Korea is typically a traditionally busy month for bonds, according to bankers, but the rush of deals has surpassed expectations as companies take advantage of a current positive sentiment among investors towards Korea.

Expectations of higher interest rates prompted some Korean corporates to shelve deals in 2023 but upcoming funding needs have prompted the transactions to be revived this year, bankers said.

China's offshore bond deals have fallen sharply as its real estate sector, a key issuer of dollar bonds, remains in crisis and the nation's economy still recovers from the pandemic.

"Korea is a very well-liked credit across different cycles... The country is AA rated, its issuers are either AA, A or BBB category," Daniel Kim, HSBC's co-head of debt capital markets for Asia Pacific, said.

"In the current environment, where there is a lot of uncertainty and macro noise, Korea is seen as a safe haven for a lot of investors to put their money into."

SK Hynix, the world's second largest memory chip maker was one of the biggest Korean companies to tap markets this year as it raised $1.5 billion in a two-tranche deal last month that received orders worth $6.5 billion.

Korean deals accounted for 44% of dollar bonds issued across the Asian region, not including Japan and Australia, where the value of transactions is down 10% year to date, according to the LSEG data.

"I think the pace can be maintained," said Rishi Jalan, Citi's head of Asia Debt Syndicate, referring to the record start to 2024.

"Our overall volume expectations are similar to 2023 for this year, so around $30 to $40 billion. We're not expecting to see any material decline."

The expansion of South Korea's battery makers into markets like the United States is expected to require those companies to continue to need to tap funding markets for the rest of the year.

"Continued growth in the Korea battery sector will require significant investment and financing," Youn Sung Whang, Bank of America's head of Korea capital markets, said.

"This is likely to come via the US dollar bond market as these issuers also look to diversify their investor bases."

SYDNEY (Reuters) - Australian consumer sentiment rebounded to a 20-month high in February as a slowdown in inflation fuelled hopes interest rates had finally peaked and boosted spending intentions, a survey showed on Tuesday.

The Westpac-Melbourne Institute index of consumer sentiment jumped 6.2% in February, from January when it fell 1.3%. The index reading of 86.0 showed pessimists still outnumbered optimists, much as it has for the past year or more.

Political partisanship was a notable feature of the survey as the confidence index among supporters of the Liberal National opposition slipped to 77.6, while that for supporters of the ruling Labor Party surged to 103.8.

"While sentiment is still firmly pessimistic there finally looks to be some light at the end of the tunnel for Australian consumers," said Matthew Hassan, a senior economist at Westpac.

"Moderating inflation and shifting expectations for interest rates appear to be the main factors behind the lift."

Consumer price inflation slowed sharply to a two-year low of 4.1% in the December quarter, while the Reserve Bank of Australia (RBA) held rates at 4.35% at a policy meeting last week.

The central bank did leave the door open to another hike if needed, but markets are wagering the next move will be down, albeit not until later in the year.

The survey found the proportion of consumers expecting mortgage rates to rise in the next 12 months dropped to 42%, from 52% in January and 61% in December.

This had a big impact on the index measuring whether it was a good time to buy major household items which climbed 11.3% in February.

The survey's measure of family finances compared to a year earlier rose 4.9%, while the outlook for finances over the next 12 months gained 2.4%.

The outlook for the economy for the year ahead jumped 8.8% and the outlook for the next five years firmed 4.4%.

Consumers remained bullish on house prices with that index rising 2.1% to a new cycle high of 161.4.

Investing.com-- The Reserve Bank of India kept interest rates steady on Thursday as widely expected, and said that it will continue to focus on keeping inflation in check amid accelerating economic growth in the country. 

The RBI kept its policy repo rate at 6.5% for a fifth consecutive meeting, after having signaled an end to its hiking cycle in mid-2023. 

Governor Shaktikanta Das said in a livestream that the bank will continue to keep policy tight in order to bring inflation more in line with its 4% target. Das also noted that the Indian economy was expanding at a rapid pace, and would likely continue to outpace its global peers in the coming years. 

The RBI Governor forecast real gross domestic product (GDP) for the current fiscal year to March 31, 2024, at 7.3%. Real GDP growth for fiscal year 2025 is projected at 7%, with the Indian economy set to vastly outpace its global peers. 

India was the fastest-growing major economy over the past two years, amid increased government spending and foreign investment. Consumer spending, particularly in India’s urban centers, was also a key driver of growth. 

But Das noted persistent risks from inflation, and stressed on the need to keep inflation balanced and under control to facilitate continued economic growth. 

The RBI’s decision comes just a few days before Indian consumer price index inflation data, which is expected to show price pressures remaining sticky and well above the RBI’s 4% annual target in January. 

Food price inflation- particularly vegetables and grains- has remained a key point of contention for Indian inflation, after irregular monsoons through 2023 sparked shortages in some parts of the country. 

“The inflation trajectory going forward will be shaped by food inflation, about which there is considerable uncertainty,” Das said. 

Das said that CPI inflation was projected at 5.4% for the current fiscal year, and was projected at 4.5% for fiscal 2025, assuming a stable monsoon. 

The Indian rupee rose 0.1% after the RBI decision, while the Nifty 50 stock index tread water.

By Joyce Lee and Cynthia Kim

SEOUL (Reuters) - Legislation aimed at increasing South Korea's import-export lending to support huge new defence sales has stalled amid partisan deadlock ahead of a divisive parliamentary election, officials and analysts said.

South Korea's ruling and opposition parties have both introduced bills to boost the state bank's equity capital to 25 trillion-35 trillion won ($19 billion-$26 billion), raising the lending limit to 10 trillion-14 trillion won, as the country seeks to expedite Poland's $22 billion weapons purchase.

The sale is a key part of South Korea's plan to become the world's fourth-largest defence exporter by 2027. But under current law, the Export-Import Bank of Korea cannot lend more than 40% of its roughly 15 trillion won of equity capital, or about 6 trillion won, to a single borrower.

The state bank already provided about 6 trillion won in credit during the first phase of the deal with Poland, South Korea's biggest-ever weapons sale.

Legislators have not yet agreed to move any of the limit-raising bills forward before an extraordinary parliament session that starts Feb. 19, because of political skirmishing before an April 10 general election.

"There won't be a chance to pass the bill for at least some months (if not passed in February)," said a parliamentary official, who was not authorised to speak on the matter and declined to be identified. "Given the involvement of sensitive export talks and schedules, it needs to be now."

A change in Poland's leadership last year raised questions over whether Warsaw would scrap previously signed procurements. But such a move is unlikely because it could cause massive diplomatic fallout, said Abhijit Apsingikar, an aerospace and defence analyst at GlobalData.

If there is no credit line to finance procurement from South Korea, however, it could put the unsigned procurement of 308 K9 howitzers and 820 K2 Black Panther tanks in jeopardy, he said.

An audit of modernisation contracts is under way at the Polish Ministry of National Defense, taking into account the needs of the Polish Army and the methods and sources of their financing, Poland's defense ministry said in a statement to Reuters.

"We are in contact with all bidders with whom we already cooperate, as well as with those who are interested in cooperation within the arms industry," the ministry added.

DEFENCE DEALS AT RISK

President Yoon Suk Yeol has prioritised big-ticket exports that need financing, such as defence and nuclear power plant sales, as he enters the third year of his five-year, single-term presidency.

South Korean defence firm LIG Nex1 won a $3.2 billion deal to export a mid-range surface-to-air missile defence system to Saudi Arabia, South Korea's Ministry of National Defence said on Tuesday.

"South Korea's economy relies heavily on exports, and defence exports is a growing to be key part of it, so it is essential to raise that capital limit to support major export deals," said a government official with direct knowledge of the matter, speaking on condition of anonymity because of the sensitivity of the issue.

In July 2022, Poland reached a basic agreement with South Korea to buy arms that included 48 FA-50 fighter jets from Korea Aerospace Industries, 672 K9 howitzers from Hanwha Aerospace and 1,000 K2 tanks from Hyundai (OTC:HYMTF) Rotem.

The next month, Poland signed contracts for the first phase of the agreement, worth 17 trillion won, for which arms including 180 K2 tanks and 212 K9 howitzers are being produced and delivered.

But the second phase, estimated by Korean media to be worth about 30 trillion won ($22.52 billion), has yet to be completed, partly because the Polish government has taken issue with the lack of funding from state-backed export credit agencies (ECAs), said four defence sources with knowledge of the matter.

Seoul has reduced Poland's financing hurdles with five local banks willing to provide a syndicated loan, but the Polish government prefers ECAs - they are seen as more stable because they have government backing, and have lower interest rates, the sources said.

At least one financing agreement for Hanwha Aerospace's second contract hasn't been reached, according to the sources.

Under the contract, the financial agreement with Hanwha must be reached by the end of June 2024, the sources said. They declined to be identified because they were not authorised to speak to the media.

Hanwha Aerospace declined to comment.

($1 = 1,331.9700 won)

By Michael S. Derby

NEW YORK (Reuters) - A top Federal Reserve Bank of New York staffer said Wednesday efforts to shrink the size of the central bank’s balance are proceeding smoothly and officials are closely watching for market signals that it’s time to stop the draw down.

“Balance sheet reduction has been proceeding as planned and reserve supply remains above ample,” which signal markets are still enjoying plenty of liquidity, said Jule Remache, Deputy System Open Market Account manager and head of Market and Portfolio Analysis for the bank, in a speech text prepared for the Women in Fixed Income Conference in New York. The head of the System Open Market Account, who is responsible for implementing Fed monetary policy directions, is Roberto Perli.

Remache was discussing the outlook for the Fed's work to trim the size of its holdings, which more than doubled to a peak of $9 trillion by the summer of 2022 due to central bank bond buying aimed at stabilizing markets and providing stimulus to the economy. The Fed has thus far shed about $1.4 trillion from its holdings, and with the central bank nearing its first rate cut, markets are actively debating when balance sheet draw down will also stop.

Remache acknowledged a wide range of market views on that question and did not offer her own forecast. But she said in her speech that money market conditions are showing “incremental signs” of shifting in response to tighter liquidity conditions. She pointed to more volatility in short-term rates, although she noted that did not extend to the federal funds rate, the central bank’s chief tool to influence the economy.

“In the coming months, we will be monitoring money markets for emerging pressures, which may at some point indicate we’re getting closer to a level that is somewhat above ample,” the Fed official said

Remache pointed to the draw down in the size of the Fed’s reverse repo facility as evidence of the Fed’s withdrawal of liquidity. That facility has fallen from a peak of $2.6 trillion at the end of 2022 to $553 billion on Wednesday. Many see the reverse repo tool as a proxy for excessive liquidity and believe when it is near zero or close to it, the Fed will have to actively weigh stopping its balance sheet draw down.

Remache said she expects further drops in the reverse repo facility and that bank reserve levels, which have been fairly steady, will also begin to shrink.

But Remache also cautioned that various factors in the financial system argue against the Fed returning its holdings to their pre-pandemic $4.2 trillion size. The Fed’s current balance sheet size is $7.7 trillion.

By Michelle Nichols

UNITED NATIONS (Reuters) - United Nations sanctions monitors are investigating dozens of suspected cyberattacks by North Korea that raked in $3 billion to help it further develop its nuclear weapons program, according to excerpts of an unpublished U.N. report reviewed by Reuters.

"The Democratic People's Republic of Korea (DPRK) continued to flout Security Council sanctions," a panel of independent sanctions monitors reported to a Security Council committee, using North Korea's formal name.

"It further developed nuclear weapons and produced nuclear fissile materials, although its last known nuclear test took place in 2017," wrote the monitors, who also said Pyongyang had continued ballistic missile launches, put a satellite into orbit and added a "tactical nuclear attack submarine" to its arsenal.

North Korea has long been banned from conducting nuclear tests and ballistic missile launches by the 15-member Security Council. Since 2006, it has been subject to U.N. sanctions, which the council has repeatedly strengthened to try and cut off funding for its weapons of mass destruction (WMD) development.

"The panel is investigating 58 suspected DPRK cyberattacks on cryptocurrency-related companies between 2017 and 2023, valued at approximately $3 billion, which reportedly help fund DPRK's WMD development," the monitors wrote.

North Korea's mission to the United Nations in New York did not immediately respond to a request for comment on the report by the sanctions monitors. Pyongyang has previously denied allegations of hacking or other cyberattacks.

The U.N. report is due to be released publicly later this month or early next month, diplomats said.

North Korean hacking groups subordinate to the Reconnaissance General Bureau (RGB) - Pyongyang's primary foreign intelligence agency - reportedly continued with a high number of cyber attacks, the sanctions monitors said.

"Trends include DPRK targeting of defense companies and supply chains, and increasingly sharing infrastructure and tools," according to the monitors, who report twice a year to the 15-member Security Council.

LUXURY GOODS

Any further action against North Korea by the council is unlikely as it had been deadlocked for several years on the issue. China and Russia instead want the sanctions to be eased to convince Pyongyang to return to denuclearization talks.

Moscow and Pyongyang also vowed last year to deepen military relations. The U.S. has accused North Korea of supplying weapons to Russia for its war in Ukraine, which North Korea and Russia have denied.

"The panel is investigating reports from Member States about supplies by DPRK of conventional arms and munitions in contravention of sanctions," the sanctions monitors wrote.

The isolated Asian nation imposed a strict lockdown amid the coronavirus pandemic that slashed its trade and aid access, but it slowly began to re-emerge last year.

"Trade continues to recover. The 2023 overall recorded trade volume surpassed the total for 2022, accompanied by the reappearance of a large variety of foreign consumer goods, some of which could be classified as luxury items," the sanctions monitors wrote.

The sale or transfer of luxury items to North Korea has long been banned by the Security Council. Under U.N. sanctions imposed in 2017, all countries were also required to repatriate North Koreans working abroad to stop them earning foreign currency for North Korean leader Kim Jong Un's government.

"The panel investigated reports of numerous DPRK nationals working overseas earning income in violation of sanctions, including in the information technology, restaurant, and construction sectors," the sanctions monitors wrote.

They also said North Korea continues to access the international financial system and engage in illicit financial operations in violation of U.N. Security Council resolutions.

WASHINGTON (Reuters) -The U.S. Treasury Department's financial crimes unit on Wednesday proposed a long-awaited plan aimed at curbing the flow of illicit funds through American real estate markets.

The proposal, detailed by the Treasury Department's Financial Crimes Enforcement Network (FinCEN) on Wednesday, would require real estate professionals to flag suspicious activity seen in cash residential home purchases.

Title insurance companies, lawyers and certain other professionals involved in such deals would have to file reports for any non-financed sale or transfer of residential properties to an entity or trust, according to FinCEN's proposal.

If finalized, the new rule would replace a patchwork system that anti-corruption advocates have said has allowed bad actors to hide the proceeds of illicit activity by buying homes through legal entities or trusts, without financing.

Last year, Treasury Secretary Janet Yellen said that criminals for decades have anonymously hidden such ill-gotten gains in real estate, estimating $2.3 billion was laundered through U.S. real estate between 2015 and 2020.

Financial institutions have long been expected to flag suspicious activity to regulators, but cash real estate transactions generally have not been subject to such rules. The new requirements would demand real estate professionals involved in such transactions collect and report data to FinCEN about the property being sold, the seller and the beneficial owner of any legal entity receiving the property.

Officials first said in 2021 that they planned to implement such a rule.

Anti-corruption advocates applauded Wednesday's proposal.

"This draft rule sends a clear message that the U.S. plans to close off options for criminals looking to hide their ill-gotten gains in our real estate markets,” Ian Gary, executive director of the nonpartisan FACT Coalition, said in a statement.