Asia stocks trim gains, test policymakers’ resolve

TOKYO (Reuters): European stock index futures rose on Wednesday, despite skepticism among investors about whether European leaders are going far enough in their efforts to fix the region’s sovereign debt crisis that prompted Asian stocks to trim earlier gains.

Doubts also grew over the sustainability of Tuesday’s rise in U.S. stocks, which came after Federal Reserve Chairman Ben Bernanke eased concerns over the damage to the U.S. economy from a possible Greek default with a promise of more economic stimulus if needed.

“The market in Asia is testing Bernanke’s resolve to be able to provide stimulus,” said Jonathan Barratt, managing director of Commodity Broking Services.

“What the market wants to see is something definite, and it is losing faith in what Bernanke can deliver.”

S&P 500 futures eased 0.3 percent in Asian trading, suggesting a weaker start on Wall Street.

In credit markets, which have been showing increasing signs of strain in recent weeks, the iTraxx Asia ex-Japan investment grade index widened slightly from the open, but at a much slower pace than a sharp widening earlier this week.

In the latest blow to be dealt to investor confidence by Europe’s intractable crisis, Moody’s on Tuesday slashed its bonds rating on the euro zone’s third-largest economy Italy by three notches, saying it saw a “material increase” in funding risks for euro zone nations and warning of more possible cuts.

“They have to be continuously seen to be working on the problem,” said Barratt, adding that European policymakers needed to show concrete action to convince the markets they can stop the region’s debt woes triggering a full-blown banking crisis. MSCI’s broadest index of Asia Pacific shares outside Japan rose 0.5 percent, having been up as much as 0.9 percent earlier. It hit a two-year low the day before.

But Japanese and Korean shares turned negative after an initial gain. The Nikkei fell 0.86 percent, after opening up 0.4 percent, with the broader Topix index tumbling below lows marked after a major earthquake in March as foreign investors looked to cut risk in their portfolios.

“There are now hopes that a worst-case scenario in Europe will be avoided, but because this plan is still under consideration and is not formally decided yet, plenty of risks remain,” said Fumiyuki Nakanishi, a strategist at SMBC Friend Securities.

South Korean stocks extended their slide and the government revived weekly crisis management meetings to try to stem capital flight from its financial markets, which are particularly vulnerable as Korean banks carry a heavy load of short-term debt.

European stock index futures pointed to sharp gains after heavy losses in the previous three sessions, with futures for the Euro STOXX 50, Germany’s DAX and France’s CAC-40 up 1.3-1.7 percent.

As the euro slipped from highs, gold’s rise was capped, while other commodities such as oil and copper struggled to extend gains on lingering concerns over global demand.

Brent crude was up 1.75 percent, but off an intraday high of $102.10 a barrel, as tighter U.S. crude stocks and promises by the Fed to launch new stimulus measures if necessary helped halt a sharp three-day sell-off.

U.S. crude traded up $2.11 at $77.78 a barrel.

The euro eased 0.4 percent against the dollar, faltering after a brief rally that had lifted the single currency from a near nine-month trough against the dollar and a decade low versus the yen on Tuesday.

U.S. Treasuries stabilized in Asia on Wednesday, with the 10-year notes yielding 1.83 percent against 1.82 percent in late U.S. trade, when demand for the safety of government bonds eased following Bernanke soothing comments.

European finance ministers agreed on Tuesday to safeguard their banks as doubts grew about whether a planned second bailout package for debt-laden Greece would go ahead.

A sense of urgency appeared to be heightening in Europe as French-Belgian municipal lender Dexia SA became the first European bank to have to be bailed out due to the euro zone’s sovereign debt crisis.

Tensions remained, however, as euro zone finance ministers postponed a crucial aid payment to Greece until mid-November, while European Union ministers said they were reviewing the size of private-sector involvement in a second bailout package for Athens.

Japan, which holds 20 percent of the total bonds issued by the European Financial Stability Facility (EFSF), on Wednesday offered its share of help, saying it would consider continuing its purchases of bonds issued by Europe’s bailout fund.