LONDON/TOKYO - Government bonds remained under pressure on Thursday and the dollar held steady near its highest levels in more than a year as global stocks declined.

The pound headed for its biggest three-day drop in nearly two years, under pressure from a selloff in global bonds that has hit gilts especially hard, driving yields to 16-1/2-year highs, as concern mounts about Britain's finances.

Sterling was last down 0.6 percent at $1.229, having touched its lowest since November 2023 earlier in the day.

Concern about rising inflation, reduced chances of a drop in interest rates, uncertainty over how US President-elect Donald Trump will conduct foreign or economic policy, and the prospect of trillions of dollars in extra debt sales have sent bond yields soaring around the world this week.

This took European stock markets lower at the open but they steadied as of 0917 GMT, with retailers down 1.8 percent and the FTSE 250 down 0.3 percent.

The benchmark 10-year US Treasury yield eased to 4.6729 percent from an overnight peak of 4.73 percent, which was the highest level since April 2024.

"This rout is not a UK but a global phenomenon. Sovereign debt is the elephant in the room. Will the UK achieve the growth we'd all like to see? The markets are not convinced," said Russ Mould, investment director of AJ Bell in London.

The US dollar index, which gauges the currency against sterling, the euro and four other major peers, edged up to 109.08, sitting not too far from the highest level since November 2022 of 109.54, reached a week ago.

Pressure points

The latest boost for the dollar and US Treasury yields follows recent signs of resilience in the US economy and inflation, which prompted markets to reduce expectations for Federal Reserve rate cuts this year.

Minutes of the Fed's December policy meeting, released on Wednesday, showed officials were concerned that Trump's proposed tariffs and immigration policies may prolong the fight against inflation.

Selling in Treasuries on Wednesday accelerated after a CNN report that Trump was considering declaring a national economic emergency to provide a legal justification for a series of universal levies on allies and adversaries.

Markets are fully pricing in just one 25-basis-point US rate cut in 2025, and see around a 60 percent chance of a second.

All that has combined to make global stock market sentiment fragile, and Asian equities closed lower on Thursday.

Japan's Nikkei closed down almost 1 percent, as investors sold stocks to book profits after a recent rally, with chip-related shares dragging on the index the most.

US stock markets are closed on Thursday to mark the funeral of US president Jimmy Carter. US bond markets close earlier at 1900 GMT.

On Friday, the closely watched US monthly payrolls report will provide clues on the Fed policy outlook.

Oil prices edged lower, pressured by recent dollar strength and large builds in global inventories.

Brent crude futures eased 11 cents to $76.05 a barrel. US West Texas Intermediate crude fell 16 cents to $73.16.

Gold prices steadied at $2,663 an ounce after hitting an overnight peak of $2,670.10, the highest since Dec 13.

Leading cryptocurrency bitcoin was steady around $93,432, following a two-day slide of 7 percent.