Asian shares at 3-month high after China inflation

Reuters: Asian shares rose to a three-month high on Thursday after a drop in Chinese consumer inflation left room for more policy easing to support growth, while Australia’s improving labour market kept the country in better shape without stimulus for now.

The new data added to growing but still guarded investor optimism that European policymakers will take decisive action to tackle the euro zone debt crisis, helping Asian equities rally for the fourth-straight day.

European stocks were likely to follow Asia higher, while a 0.3 per cent gain in US stock futures signalled a solid Wall Street start. Financial spread betters called the main indexes in London .FTSE, Paris and Frankfurt to open up as much as 0.4 per cent.

MSCI’s broadest index of Asia-Pacific shares outside Japan jumped 1 per cent, led by a 1.8 per cent advance in Korean shares .KS11, while Australian shares rose 0.3 per cent, supported by data showing employment rose and the jobless rate ticked down in July.

“Investors are continuing to shed safe havens while adding risk, with foreign investors unrelenting in their appetite for local stocks,” said Cho Sung-joon, an analyst at NH Investment & Securities, speaking of Korean shares.

Japan’s Nikkei stock average hit the psychologically key 9,000 mark for the first time in five weeks before easing slightly, but was still up 1.1 per cent by early afternoon.

China’s annual consumer inflation fell to a 30-month low of 1.8 per cent in July while producer prices dropped 2.9 per cent year-on-year in July.

“This number gives more room for policy easing. It is now pretty clear that CPI will likely be below the official 4 per cent target for the year, so the policy focus for the government can stay clearly on growth,” said Zhang Zhiwei, chief China economist at Nomura in Hong Kong.

Chinese industrial output and retail sales reports are due at 0530 GMT.

South Korea’s central bank kept interest rates steady on Thursday as widely expected to assess the impact of last month’s surprise cut, but investors continue to price in another reduction soon to shore up Asia’s fourth-largest economy.

The Bank of Japan also stood pat, as expected, ending its two-day policy meeting with no announcement of new monetary easing steps.

Vague hopes

Markets have been supported by hopes the European Central Bank will start buying sovereign bonds to lower borrowing costs for Spain, and the Federal Reserve will expand its monetary easing, despite a lack of comments or data supporting such views, and suggestions from the authorities that any steps were not likely to be taken before September.

The euro inched up 0.1 per cent to $1.2378, but still capped below a one-month high of $1.2444 hit on Monday. The Australian dollar hit a peak of $1.0615, its highest since March 20, helped by the solid jobs figures that fortified views the central bank will stand pat for now.

“The euro, while there are risks, has been supported by the notion that something will be done (about the debt crisis) regardless of the time it may take,” said Hiroshi Maeba, head of FX trading Japan for UBS in Tokyo.

As euro short-covering had been completed, the currency was expected to stick to narrow ranges until fresh factors emerged, Maeba said.

While he believes the Australian dollar may be approaching a near-term top after rallying to its highest since March earlier this week, it could continue to draw support from the country’s relatively high yields compared to countries where yields are negative.

A firmer euro and the prospect for China’s future monetary stimulus underpinned gold, which added 0.3 per cent to $1,615.54 an ounce.

Oil edged higher, with Brent up 11 cents or 0.1 per cent at $112.25 a barrel and US crude up 0.3 per cent at $93.65 a barrel.

Asian credit markets were resilient, with the spread on the iTraxx Asia ex-Japan investment-grade index tightening by 1basis point and hovering near a four-month low.