Asian shares rise, investors see brighter US economy

Reuters: Asian shares edged higher and the dollar was firm against the yen on Monday with investors buoyed after the US market hit an almost four-year high last week and with higher European stocks reflecting signs of growing stability in the euro zone.

The MSCI Asia Pacific ex-Japan index inched up 0.3 percent, after last week’s modest 0.8 percent gain.

Japan’s Nikkei was up 0.3 percent, at 10,161, having earlier reached an 8-month high above 10,172 as the market was underpinned by buying of blue-chip laggards.

“U.S. economic data continues to be solid,” said Fujio Ando, senior managing director at Chibagin Asset Management in Tokyo. “Confidence in the U.S. economy will push the Nikkei up to 10,200 even this week, although we will have to watch the housing data this week.” U.S. consumer prices rose the most in 10 months in February as the cost of gasoline spiked, but there was little sign that underlying inflation pressures were building up. Surging gasoline prices put a small dent in consumer confidence early this month, other data showed on Friday.

On Friday, the benchmark Standard & Poor’s 500 Index stayed above the 1,400 level it reached last week for the first time since May 2008, while European stocks hit their highest level since before the market’s slump in late July. The International Monetary Fund said on Sunday that the global economy has stepped back from the brink of danger and signs of stabilisation are emerging from the euro zone and the United States, but high debt levels in developed markets and rising oil prices are key risks ahead.

The yen was on the defensive in Asia on Monday, hitting a five-month low against the euro of 110.13 yen earlier, and still held near an 11-month low of 84.19 yen against the dollar. The euro eased 0.1 percent from an one-week highs of $1.3178.

Currency speculators raised their bets against the yen in the latest week to their highest in 11 months. Analysts have said the dollar’s strength was underpinned by the rise in U.S. Treasury yields. Benchmark 10-year yields touched four-month highs of 2.36 percent on Friday, as optimism that the economic recovery was gaining momentum reduced the safe-haven allure of U.S. government debt.

The 10-year yields have risen more than 25 basis points in a week, which also saw the dollar gain about 5 percent against the yen.

“The economic fears that dominated last year have dissipated, and the backdrop of lower economic uncertainty should provide support for risk assets,” Barclays Capital analysts said.

But concerns have emerged about Asian growth prospects, and the political environment in Europe leading up to French and Greek elections in coming weeks warrants close observation, they said.

“As such, we expect risky assets to continue to hold their own, but given the lingering uncertainties, we prefer to remain close to the beneficiaries of a strong U.S. economy,” they added.

Oil extended gains on Monday after rising more than 2 percent late last week, drawing support from the continuing tensions over Iran’s disputed nuclear program and the potential for supply disruptions in the region.

Brent oil was up 0.1 percent to $125.97 a barrel, after settling up $3.21 on Friday, while U.S. crude was up 0.2 percent to $107.28 a barrel, after settling up $1.95 on Friday.

While Treasuries lost their safe-haven appeal, gold gained on its safety perception as oil prices climbed. Spot gold rose 0.6 percent to $1,662 an ounce.

Asian credit markets firmed on Monday, with the spread on the iTraxx Asia ex-Japan investment-grade index narrowing sharply by 11 basis points.

The European Central Bank’s aggressive liquidity injection has soothed fears about credit crunch in the euro zone and stabilised market rates, but wariness persisted about the risk of other highly indebted euro zone countries needing similar debt swaps to Greece.

The cost for banks to borrow three-month, unsecured dollar-based funds last week had their first weekly rise in 2012 as the positive effects of cheap central bank loans on funding levels appeared to taper off.

In a crucial test of investors’ appetite for Europe’s rescue fund, the European Financial Stability Facility will take its first stab at selling ultra long-bonds as early as this week.