Asian shares extend gains as investor fears ease

Reuters: Asian shares extended gains on Tuesday as a combination of stabilising Chinese markets, rebounding oil prices and solid US consumption data prompted investors to look for bargains after last week’s rout.

European shares were also expected to build on Monday’s strong start, with spreadbetters seeing both Germany’s DAX and France’s CAC 40 rising up to 0.7% and Britain’s FTSE 0.4%.

S&P futures rose 1.7%, pointing to a firmer opening as well for US markets, which were shut on Monday for a holiday.

MSCI’s broadest index of Asia-Pacific shares outside Japan gained 1.1%, with mainland China shares advancing 2.7% to three-week highs, helped by a surge in China’s bank lending to a record high.

“Before the start of the Lunar New Year, there were worries about Chinese shares and a possible further fall in the yuan. But since the resumption of trading on Monday, Chinese markets have been surprisingly steady,” said Koichi Yoshikawa, executive director of financial markets at Standard Chartered Bank.

Japan’s Nikkei rose 0.2% after a 7.2% climb on Monday, recovering a sizable part of its 11% slump last week – its biggest since 2008.

“It is partly a reaction after such big falls last week. Solid U.S. data is also improving investor sentiment given that they are counting on US growth to lead the global economy,” said Hirokazu Kabeya, chief global strategist at Daiwa Securities.

Concerns over the health of European banks, the pain of cheap oil prices on energy producers and worries about slowdowns in the US and Chinese economies pushed the world’s share prices to 2-1/2-year lows last week.

But US retail sales data on Friday showing firm growth allayed some fears – at least for now – that the US economy could be dragged into recession as growth stumbles in many parts of the world.

Sentiment on the U.S. currency also improved, with the dollar rising to 114.65 yen, recovering further from a 15-month low of 110.985 touched on Thursday.

The euro also eased to as low as $1.1128 on Monday, retreating from Thursday’s 3 1/2-month high of $1.1377, and last stood at $1.1173.

The common currency was also driven lower by remarks from European Central Bank President Mario Draghi that the bank is ready to ease policy further in March.

Gold extended fall from Thursday’s one-year peak of $1,262.90 per ounce as safe-haven buying in the precious metal in recent weeks was rolled back.

It fell 0.6% to $1,203.90, unable to find a floor after 2.2% on Monday, which was its biggest fall in almost seven months.

Oil prices soared as news that top officials from the world’s biggest oil producers – Saudi Arabia, Russia, Venezuela and Qatar – spurred speculation of an eventual deal to tackle a massive supply glut.

“As much as we continue to believe that this is yet another meeting that would yield nothing, the markets remain wary of any sudden agreement that major oil producers could come to,” said Daniel Ang, an analyst at Phillip Futures in Singapore.

Global benchmark Brent futures rose 4.1% to $34.76 a barrel, their highest level in a week. U.S. crude futures gained 4.4% to $30.72.

As risk sentiment improved, yields on top-rated government bond rose, with the 10-year U.S. Treasuries yield rising 3.5 basis points to 1.781% from 1.746% at the end of last week.

Japanese bond yields fell, however, as the Bank of Japan started implementing negative interest rates on Tuesday, with the 10-year yield dropping 4.5 basis points to 0.040%.

The benchmark overnight interbank lending rate fell to zero% but not to negative levels partly because some banks have not fixed their system to deal with negative rates.