By Selena Li

HONG KONG (Reuters) – Asian stockmarkets fell and the dollar rose on Tuesday with investors worried about rising interest rates and an escalation in the Ukraine war, while Treasury yields leapt as an unnerving collapse in British gilts ricocheted around global bond markets.

MSCI’s broadest index of Asia-Pacific shares outside Japan fell 1.7% to a two-year low, led by a deepening slide for chipmakers and China tech stocks in the wake of U.S. export curbs aimed at hurting Chinese technology development.

dropped 2%. The risk-sensitive Australian and New Zealand dollars hit 2-1/2 year lows.

“Risk aversion has dominated,” said National Australia Bank (OTC:) currency strategist Rodrigo Catril, with renewed Russian attacks on Ukrainian cities and global recession fears worrying markets.

“Sentiment has also not been helped by a big core global bond sell off led by UK gilts, notwithstanding a flurry of announcements designed to calm UK debt markets,” he added.

Treasury yields jumped when trading resumed after Monday’s U.S. holiday, with 30-year yields up 11 basis points to an almost nine-year high of 3.956%. [US/]

Bonds globally have been sideswiped by the rout in gilts, amid fears pension funds were forced into fire sales and British promises of more tax details and extra emergency measures from the Bank of England have done little to stem the selling.

The backdrop, meanwhile, is of ever higher interest rates and nerves are fraying ahead of Thursday’s release of U.S. inflation data which could set the stage for another big hike from the Federal Reserve in November.

“Inflation is stubborn, and the Fed needs to go beyond, above beyond what the market is expecting,” said Tai Hui, chief Asia-Pacific market strategist at J.P. Morgan Asset Management.

Futures pricing shows traders are positioned for about a 90% chance of a 75 basis point Fed hike next month and for the Fed funds rate to hit 4.5% by February and stay there most of 2023.

That outlook is giving dollar bulls another run and has the greenback drifting toward the milestone highs it scaled last month.

The made a 2-1/2 year low of $0.6260 in the Asia session and the a low of $0.5541. [FRX/]

The euro fell 0.2% to $0.9685 and was drifting back toward September’s 20-year low of $0.9528. Sterling was under pressure and down 0.2% at $1.1025.

The Japanese yen, at 145.75 per dollar, was within a few pips of the level that prompted official support a couple of weeks ago.

fell marginally to $95.91 a barrel. fell 0.1% to $1,663 an ounce.