Shares rise on guarded stimulus hopes from ECB, Fed
TOKYO, July 31 — Asian shares rose on Tuesday on hopes for further stimulus from the European Central Bank and the US Federal Reserve, both of which hold policy meetings this week, but scepticism about the long-term effectiveness of any ECB actions capped the euro.
European stocks were set for modest gains, with a 0.3 per cent rise in US stock futures signalling a firm start on Wall Street. Financial spreadbetters called the main indexes in London, Paris and Frankfurt to open as much as 0.2 per cent higher.
MSCI's broadest index of Asia-Pacific shares outside Japan rose 1.5 per cent to hit its highest level since May 11 and was set for a monthly gain of 3.7 per cent, slightly ahead of June's 3.5 per cent rise.
Korean stocks led the region on Tuesday, gaining 2.3 per cent.
"Risk appetites have seen a dramatic improvement over the last few sessions and the return of foreign buying is underpinning preferred stocks, a mix of large-caps that are lifting the market as a whole," said Cho Sung-joon, an analyst at South Korea's NH Securities.
The impact of the three-year euro debt crisis on Asia was evident on Tuesday, however, with Japan's Manufacturing Purchasing Managers Index (PMI) falling at its fastest pace since last year's earthquake and tsunami, as demand for Japanese goods slows in Europe and China.
Market sentiment has been underpinned by speculation the ECB, at a meeting on Thursday, may resume its bond buying programme to force down rising Spanish and Italian borrowing costs, but German opposition has heightened uncertainty.
The Fed has also come under greater pressure to support flagging growth, but many economists do not expect any further easing until September. The Fed starts a two-day policy meeting on Tuesday, ahead of a key nonfarm payrolls report due on Friday.
"There is a bit of positive sentiment supporting the market. The optimism stems from the upcoming central bank meetings and local data is helping too," said Stan Shamu, market strategist at IG Markets, referring to Australia's smaller-than-expected decline in building approvals in June.
Japan's Nikkei stock average rose 1 per cent.
The euro edged up 0.2 per cent to US$1.2285 (3.8654), still below a three-week high of US$1.2390 touched on Friday but well above a two-year low around US$1.2042 reached last week. The euro was also up 0.2 per cent against the yen at 95.95.
The Australian dollar hit a four-month high against the US dollar around US$1.0537 on Tuesday and an all-time peak versus the euro around AUS$1.1646 in offshore trade, as speculation of monetary stimulus spurred investor appetite for high-yielding currency.
But caution remained about the effect of any measures from the ECB, given doubts that central bank action will be sufficient to resolve the euro zone's fiscal woes.
"Even if the ECB resumes its bond buying programme, the rise in the euro will likely just be met with selling," said Hideki Amikura, forex manager at Nomura Trust Bank, noting that the euro would at best rise to around 98 yen, for example.
Brent crude held above US$106 per barrel but was capped by caution among investors about the effect of any fresh stimulus measures coming from the ECB or the Fed.
Copper added 0.3 per cent to US$7,569.75 a tonne, supported by stimulus hopes, a weaker dollar and gains in riskier assets such as stocks.
Gold edged up 0.2 per cent to US$1,623.06 an ounce, as investors awaited monetary policy decisions, a key factor driving bullion prices.
Dominic Schnider, an analyst at UBS Wealth Management in Singapore, expected gold prices to fall to as low as US$1,520 an ounce in the next three months, in the absence of more bond buying by the Fed which would increase gold's allure as in inflation hedge.
India's central bank left interest rates unchanged for the second time since June, in line with expectations, while cutting its growth forecast and lifting its inflation outlook as economic conditions deteriorate.
Grain markets, which had been supported by supply worries from the worst US drought in a half century, will likely see soybeans post their biggest monthly gain since June 2008 and corn its biggest monthly rise in over five years.
Asian credit markets held steady, after the spread on the iTraxx Asia ex-Japan investment-grade index fell to its lowest since early April on Monday in thin trading volumes. — Reuters