Asia shares gain as US data raises hope of Fed easing

Reuters: Asian shares rose on Monday as weaker-than-expected U.S. growth data left open the possibility of further monetary stimulus from the Federal Reserve to boost growth, but trading was subdued with Japanese and Chinese markets closed.

The dollar remained pressured by Friday’s report showing annual growth in the U.S. economy cooled in the first quarter to 2.2 percent, below a 2.5 percent forecast, and concerns about lower fuel demand brought oil prices lower.

“A flavour of QE (quantitative easing) is back in the air, driving the U.S. dollar lower and risky assets higher,” said Sebastien Galy, strategist at Societe Generale.

Asian equities followed the rise in global equities on Friday on the back of strong earnings reports, although Asian growth prospects were clouded as South Korea reported a fall in industrial output in March.

European shares were likely to edge higher, with financial spreadbetters predicting that major European markets would open up as much as 0.2 percent. U.S. stock futures were up 0.1 percent.

MSCI’s broadest index of Asia-Pacific shares outside Japan added 0.9 percent for a 0.4 percent monthly gain, after suffering a 3.2 percent drop in March.

Copper prices climbing to their highest in nearly a month on tightening demand from falling stockpiles lifted commodity-reliant Australian shares 0.8 percent.

The Australian equities market “has been pushing to exceed recent highs in anticipation of lower domestic interest rates and a soft landing for China’s economy”, Ric Spooner, chief market analyst at CMC Markets, said.

A private gauge of Australian inflation on Monday pointed to price pressures being well contained in April, supporting views that the Reserve Bank of Australia, when it meets on Tuesday, will cut its cash rate a quarter point to 4 percent - which would be its first easing since December.

Hong Kong shares rose as shares of China’s big four banks climbed despite concerns over growing pressure from a slowing economy and rising funding costs after reporting weaker-than-expected first-quarter results last week.

“Investors are comfortable to park their funds in this (Chinese banks) sector as their valuations are not particularly demanding as compared with others such as the consumer sector,” said Patrick Yiu, a director at CASH Asset Management.

The yen rose to a fresh two-month high of 80.08 yen to the dollar while the euro hovered near its three-week high around $1.3270 hit on Friday.

Currency speculators last week cut their long U.S. dollar positions for a second consecutive week while trimming their short euro and yen positions, according to data from the Commodity Futures Trading Commission released on Friday.

The softer U.S. GDP data has shielded the euro from falling due to problems in the euro zone, with the single currency likely to stay above a key $1.3100 floor as long as Fed officials maintain their stance of keeping low rates until 2014, said Ashraf Laidi, chief global strategist at City Index Group.

The Bank of Japan took further easing steps on Friday which had little lasting effect in weakening the currency.

Analysts say  concerns over Europe’s debt woes could support demand for the yen. But Japan’s own structural problems, such as high public debt and deteriorating trade terms, would weigh on the currency.

In a sign of a new German emphasis on growth-boosting measures to ease painful austerity sweeping across the euro zone, German Chancellor Angela Merkel added her voice on Saturday to calls to bolster the European Investment Bank and to use European Union infrastructure funds more flexibly to help spur economic growth in Europe.

Rising equities improved sentiment in Asian credit markets, with the spread on the iTraxx Asia ex-Japan investment-grade index narrowing by four basis points.

Reflecting investor caution towards risk, EPFR Global said

U.S. bond funds drew in $4.63 billion in the week ended April 25 for the 25th consecutive week of inflows and the longest run of gains since mid-2010. Globally, equity funds fared poorly in the week with net redemptions of $7.38 billion, EPFR said.

Big Japanese life insurance firms, in a series of interviews with Reuters, said they would continue buying domestic bonds with many sounding cautious about boosting foreign bond purchases, while some expressed interest in emerging market shares in pursuit of returns.

Japanese fund managers stepped up their bond allocations this month and cut back their exposure to more volatile equities, a Reuters poll showed on Monday, as they ducked riskier assets in the face of Europe’s prolonged sovereign debt crisis.

Brent June crude eased 0.2 percent at $119.57 a barrel while U.S. crude was down 0.1 percent at $104.89.