Asian shares up after Fed minutes, China weighs

Reuters: Asian shares rose to a two-week high on Thursday after Federal Reserve minutes raised hopes for fresh monetary stimulus, but a survey suggesting that China’s manufacturing sector is contracting capped the gains.

Ahead of the euro zone’s flash PMI and a German-French meeting over Greece, financial spreadbetters called London’s FTSE 100 .FTSE, Paris’s CAC-40 .FCHI and Frankfurt’s DAX .GDAXI to open up as much as 0.9%. .L .EU.

The firmer tone follows minutes of the July 31-Aug 1 Fed meeting. They showed the Fed was likely to deliver another round of monetary stimulus “fairly soon” unless data points to “substantial and sustainable” strengthening in the recovery.

That pushed the MSCI’s broadest index of Asia-Pacific shares outside Japan .MIAPJ0000PUS up as much as 1%.

However, it pulled back from the day’s peak to stand up 0.8% after the HSBC flash China PMI showed the factory sector contracting in August at its fastest pace in nine months, raising fresh concerns about the health of global demand.

Shares in Australia, which depends on China as its single largest export market, were up 0.2% .AXJO, also a tad below levels prior to the PMI data. The Australian dollar fell to $1.0510 from around $1.0533 before China’s PMI.

Speculation about more economic stimulus drove spot gold up to a 3-1/2 month high of $1,665.09 an ounce as the market started to factor in the potential for new stimulus to fuel inflation.

Copper rose to a one-month high of $7,687.50 a tonne.

“The Fed said they would act unless they see substantial and sustainable strengthening. Clearly you’re not seeing that which says the Fed has to do something,” said Hong Kong-based commodities analyst James Luke of China International Capital Corporation.

“But it’s been a pretty muted price response, which I think reflects ongoing China industrial weakening and doubts over the efficacy of any new stimulus round,” he said.

There were also conflicting views on how much stimulus the Fed would provide.

Fed Chairman Ben Bernanke is likely to expand on the discussions at the central bank’s annual meeting at the end of this month in Jackson Hole, Wyoming, said Andrew Wilkinson, chief economic strategist at Miller Tabak & Co in New York.

More liquidity risky

Asian credit spreads also tightened on the iTraxx Asia ex-Japan investment-grade index by three basis points.

The euro touched a seven-week high of $1.2553 while the dollar changed hands at 78.55 yen, inching up from Wednesday’s low of 78.27 yen.

Japan’s Nikkei stock average .N225 erased earlier losses to add 0.3% as investors scooped up stocks battered earlier on the firmer yen. .T

Since the Fed’s last policy meeting, a slew of reports including retail sales and non-farm payrolls have boosted the dollar and lifted 10-year Treasury yields to a three-month high above 1.85%.

That has scaled back expectations on how aggressive the Fed will be, but it is still likely to take some action at its Sept 12-13 meeting, such as by extending the period of very low interest rates beyond 2015.

Markets are also anticipating that the ECB will take action to contain the surging borrowing costs of indebted Spain and Italy and while that has underpinned sentiment, the verdict on the fate of much more troubled Greece has yet to be delivered.

Greek Prime Minister Antonis Samaras is meeting other European officials this week to try to delay when the country has to meet the austerity targets set in exchange for its financial bailout.