Asian shares rise as investors await Bernanke’s testimony

Reuters: Asian shares surged and the euro recovered on Tuesday as investors covered short positions and hunted for bargains while awaiting U.S. Federal Reserve Chairman Ben Bernanke’s view on the U.S. economy expected later in the day.

Weak U.S. retail sales and a lower International Monetary Fund global growth forecast on Monday raised hopes of more monetary stimulus from the Fed, as Bernanke was set to give his semi-annual Congressional testimony on Tuesday and Wednesday.

He is expected to reiterate the bank’s stance that it will take further action only if economic conditions worsen.

Some traders cited the Reserve Bank of Australia’s minutes as spurring further buying in riskier assets, as they suggested the central bank may be spared for now from having to cut rates further to support growth.

“The minutes suggested a slightly hawkish tone, pushing back expectations for more rate cuts in the near-term, which eased concerns about growth in developed countries and underpinned market prices,” said Yuji Saito, director of foreign exchange at Credit Agricole Bank in Tokyo.

Australia’s central bank saw “no need” to cut interest rates at its July meeting because a material easing had already been delivered and data showed the domestic economy had more momentum than first thought.

The Australian dollar hit a session high near $1.0300 after the minutes, up from $1.0248 at its New York close.

Traders also said short covering from Monday’s selling of the euro gained further momentum after the minutes, while the dollar found support against the yen after Japanese Finance Minister Jun Azumi warned of signs that speculators were pushing up the yen due to worries about the U.S. economy, saying he is prepared to take firm measures on currencies when needed.

Hong Kong shares rally

MSCI’s broadest index of Asia-Pacific shares outside Japan climbed 1 percent for a third straight day of gains, with Chinese equities leading their peers.

Hong Kong shares .HSI rallied 1.4 percent on a mix of factors including strong performance in Chinese insurers due to solid premium growth in June, rising rail stocks on expectations for more government investment, as well as stop losses triggered on Hang Seng index futures contracts at the 19,200 level.

Australian shares rose 1 percent as investors moved into stocks with strong dividend yields while South Korean shares gained 0.7 percent on programme arbitrage trading.

Japan’s Nikkei stock average .N225 added 0.6 percent after a public holiday on Monday.

U.S. retail sales fell across industries in June for the third straight month of declines, the longest run of consecutive drops since 2008 when the country was mired in recession, fuelling investor concerns as the retail sector drives about two-thirds of the U.S. economy.

“I still don’t see why the U.S. economy should slide back into recession. Slow growth is much more likely than no growth from here. But bears will growl,” said Kit Juckes, currency strategist at Societe Generale.

“Absent recession, the dominant market driver will still be U.S. policy and cheap money,” he said.

The pressure on the United States may get stronger after the International Monetary Fund on Monday cut its global growth forecast and warned of a dimming outlook if European policymakers do not act forcibly and promptly to quell their region’s debt crisis.

The weak U.S. retail sales data pushed the 10-year Treasury yield down to 1.442 percent on Monday, matching the record low hit on June 1, while the dollar fell to a one-month low against the yen of 78.69 yen. The dollar edged up at 78.83 yen on Tuesday.

Oil steadied from earlier losses, with Brent crude up 0.2 percent at $103.52 a barrel and U.S. crude rising 0.2 percent at $88.57 a barrel.

Uncertain bailout

Uncertainty over the future of the euro zone’s permanent bailout fund deepened on Monday when Germany’s Constitutional Court said it would not rule until September 12 on whether the European Stability Mechanism, and planned changes to the region’s budget rules, are compatible with German law.

The delay in mobilizing bailout funds for troubled euro zone states could risk pushing borrowing costs in vulnerable economies such as Spain and Italy beyond sustainable levels.

The euro stood at $1.2292 on Tuesday, moving away from its two-year low of $1.2162 hit on Friday, and at 97 against the yen, above a six-week low of 96.17 yen touched on Monday.

Spain’s borrowing costs are expected to stay high on Tuesday when it tests investor appetite for its debt for the first time since announcing more austerity last week.

The spread on Italian 10-year bonds over German Bunds neared 500 basis points on Monday, the highest since early January.

But while 10-year Italian yields rose above 6 percent, Rome has found solid domestic demand to meet its funding needs.

Europe’s debt crisis and slowing global growth took a toll on the performance at the biggest U.S. public pension fund, Calpers, which had a dismal 1 percent gain in the last 12 months, well below its return target and its hefty 20.9 percent gain the year before.