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Asian stock markets : https://tmsnrt.rs/2zpUAr4

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Asia stocks ex-Japan hit 2-1/2 year low

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U.S. benchmark yields top 4% for first time since 2010

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Dollar index at 20-year high, squeezing emerging markets

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Sterling slips anew as UK fiscal credibility shaken

By Wayne Cole

SYDNEY, Sept 28 (Reuters) - Asian share markets tumbled on Wednesday as surging borrowing costs intensified fears of a global recession, spooking investors into the arms of the safe-haven dollar and driving the Chinese yuan to record lows.

Yields on U.S. 10-year Treasuries were shoved above 4.0% for the first time since 2010 as markets wagered the Federal Reserve might have to take rates past 4.5% in its crusade against inflation.

Sterling also came under renewed pressure as Moody's warned that unfunded UK tax cuts would be "negative" for the country's credit standing, deepening a damaging selloff in gilts.

"It is now clear that central banks in advanced economies will make the current tightening cycle the most aggressive in three decades," said Jennifer McKeown, head of global economics at Capital Economics. "While this may be necessary to tame inflation, it will come at a significant economic cost."

"In short, we think the next year will look like a global recession, feel like a global recession, and maybe even quack like one, so that's what we're now calling it."

Surging rates and slowing growth is not a good mix for equities and MSCI's broadest index of Asia-Pacific shares outside Japan fell 1.7% to its lowest since April 2020.

Japan's Nikkei shed 2.1% and South Korean stocks fell 2.4% to a two-year low. Chinese blue chips lost 0.6%.

S&P 500 futures got caught in the bearish mood and slipped 0.8%, while Nasdaq futures dropped 1.0%. This would be the S&P 500's seventh session of losses and threaten the technically-important 200-week average at 3,590.

EUROSTOXX 50 futures fell 1.1%, while FTSE futures lost 1.0% as European borrowing costs blew out.

"European sovereign yields have soared to multi-year highs amid concerns about UK policy-making and a right-ward shift of Italian politics in the midst of still elevated inflation," wrote analysts at JPMorgan in a note.

"The Italian 10-year spread to the German Bund has eclipsed 250bp, well above the 200bp mark we believe makes the ECB uncomfortable."

Shaking investor confidence has been the collapse in sterling and UK bond prices, which could force some fund managers to sell other assets to cover resulting losses.

Underlining the risk of yet higher interest rates, the chief economist at the Bank of England said the tax cuts would likely require a "significant policy response".