Asia Drops As White House Turmoil Hits Risk Sentiment, Dollar Bruised

Asian stocks fell on Thursday in line with global peers, and the dollar nursed deep losses against the yen as uncertainty mounted over U.S. President Donald Trump's future following reports that he tried to interfere with a federal investigation.

MSCI's broadest index of Asia-Pacific shares outside Japan dropped 0.4 percent.

Japan's Nikkei shed 1.2 percent, Australian shares lost 1.1 percent and South Korea's Kospi declined 0.5 percent.

Equities in Asia took cues from Wall Street, where the Dow and S&P 500 both sank about 1.8 percent overnight following reports that Trump tried to influence a federal probe.

The allegations have not only thrown doubt over the future of the pro-growth policies that Trump promised, but they have raised the possibility he could end up leaving the presidency.

A small but growing number of Trump's fellow Republicans called on Wednesday for an independent probe of possible collusion between his 2016 campaign and Russia, and one even mentioned impeachment.

The dollar sank broadly against its peers on the back of the turmoil in the White House.

The greenback was at 111.120 yen after reaching a two-month high above 114.00 just a week ago.

The euro extended its overnight surge to touch $1.1174, its highest since November.

"There are two implications from the latest developments in Washington, first being the possibility of congressional procedures reaching an impasse and second is the potential of Trump being forced out," said Masafumi Yamamoto, chief forex strategist at Mizuho Securities in Tokyo.

"But judging by how steeply the dollar has fallen, participants may have already priced in much of the negative news regarding Trump. The dollar could even benefit with the market thinking of post-Trump scenarios."

The dollar index against a basket of major currencies was down 0.1 percent at 97.498, not far from a six-month trough of 99.333 reached the previous day.

The U.S. currency was hurt as Treasury yields declined significantly with allegations against Trump lowering economic stimulus hopes.

The benchmark 10-year Treasury yield was at 2.238 percent after going as low as 2.209 percent overnight, its lowest since April 21.

With Treasury yields falling the gap between U.S. and German government debt yields reached its narrowest in more than six months on Wednesday as a tumultuous week in Washington contrasted with a sense of improved political stability in Europe.

In commodities, oil prices were little changed after settling at a two-week high overnight after U.S crude inventories declined for the sixth straight week. That was a positive sign for markets ahead of next week's OPEC meeting, where major oil producers are expected to extend supply cuts.

U.S. crude was effectively flat at $49.04 a barrel.

Gold hovered near a two-week high thanks to the weaker dollar and the risk aversion gripping the broader markets.

Spot gold hit $1,263.02 an ounce, its highest since May 1.