December 30, 2018 / 11:45 PM / 6 months ago

GLOBAL MARKETS-Asia stocks cheer Sino-U.S. trade talk, still see red for the year

* Asian stock markets : tmsnrt.rs/2zpUAr4

* Trump claims progress in trade talk with Xi

* Almost all Asian share indices in red for the year

* Biggest loser was China blue chips, India a rare gainer

* Bonds finishing strongly as market bets Fed is done

By Wayne Cole

SYDNEY, Dec 31 (Reuters) - Asian stocks crept higher on Monday as hints of progress on the Sino-U.S. trade standoff provided a rare glint of optimism in what has been a disappointing year for equities in the region.

U.S. President Donald Trump said he held a "very good call" with China's President Xi Jinping on Saturday to discuss trade and claimed "big progress" was being made.

Chinese state media were more reserved, saying Xi hoped the negotiating teams could meet each other half way and reach an agreement that was mutually beneficial.

The Wall Street Journal reported negotiators were starting to work out a deal that could boost U.S. exports and loosen regulations that stifle U.S. firms in China.

MSCI's broadest index of Asia-Pacific shares outside Japan added 0.2 percent in early trade, but was still down 16 percent for the year. Japan's Nikkei was closed for a holiday having ended the year with a loss of 12 percent.

Across the region, the worst performer of the year was the index of Chinese blue chips which lost a quarter of its value. The only major market in the black for the year was India, where the BSE was ahead by almost 6 percent.

The story was much the same across the globe, with the vast majority of the major stock indices in the red.

The S&P 500 is off almost 10 percent for December, its worst month since February 2009. That left it down 15 percent for the quarter and 7 percent for the year.

"Simply looking at the markets would suggest that the global economy is headed into recession," said Robert Michele, chief investment officer and head of fixed income at J.P. Morgan Asset Management.

"However, while we agree the global economy is in a growth slowdown, we don't see an impending recession," he added, in part because the Federal Reserve could provide a policy cushion.

"Already, commentary out of the Fed suggests that it is nearing the end of a three-year journey to normalize policy," argued Michele.

NO MORE HIKES

Indeed, Fed fund futures have largely priced out any hike for next year and now imply a quarter point cut by mid-2020.

The Treasury market clearly thinks the Fed is done on hikes, with yields on two-year paper having fallen to just 2.52 percent from a peak of 2.977 percent in November.

The $15.5 trillion market is heading to its biggest monthly rally in 2-1/2 years, according to an index compiled by Bloomberg and Barclays.

The precipitous drop in yields has undermined the U.S. dollar in recent weeks. Against a basket of currencies, it was on track to end December with a loss of 0.9 percent but was still up on the year as a whole.

It has also had a tough month against the yen with a loss of 2.8 percent, and was last trading at 110.31 JPY=>. Then again, 2018 was a pretty stable year for the pair given they spent all of it in a narrow trading range of 104.55 to 114.54.

The euro was ending the month on a firmer note at $1.1439 , but still nursed losses of almost 5 percent for the year to date.

That was trivial compared with the hit oil prices have taken in the last couple of months, with Brent down almost 40 percent since its peak in October.

Early Monday, the crude benchmark was up 14 cents at $53.35 a barrel but down 20 percent for the year. U.S. crude futures nudged up 7 cents to $45.40.

Gold was ending the year on a high note after rallying almost 5 percent in the past month to stand at $1,279.26 an ounce.

Editing by Sam Holmes

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