Asia stocks rise on China growth, Fed to assess easing

SINGAPORE (Reuters) - Asian stocks advanced on  Tuesday, supported by optimism that China would shun  aggressive measures to curb inflation that could inhibit its  strong economic growth or blunt its voracious demand for raw  materials.

 The euro hovered near three-week highs against a broadly weaker dollar, with traders citing solid buying from accounts,  including Asian central banks, though year-end trading was  thin and choppy.

 European stocks were seen mostly unchanged, halting a two-week rally, as traders awaited the U.S. Federal Reserve’s  last scheduled meeting of 2010 later in the day.  Analysts expected the Fed to remain in a holding pattern as officials evaluate the recent launch of a bond-buying  programme and the health of the U.S. economic recovery after a  spate of encouraging data. Fed officials will likely revise  their economic outlook to reflect stronger growth after the  White House and Republicans agreed to extend tax breaks and  provide a payroll tax cut.

 “Sentiment is decidedly more upbeat now than it was a few weeks ago,” said Austock senior client adviser Michael  Heffernan.

 “China didn’t increase rates, Ireland has settled down,

America has given the tick to the tax bill and there is no  major domestic data out.”

 The MSCI index of Asian stocks outside of Japan

 rose 0.4 percent, bringing its gains so far this year to around 13 percent, while the Nikkei edged  up 0.2 percent.

 South Korean stocks hit a fresh 37-month high, breaching the psychologically significant 2,000-point level,  fuelled by gains in key technology issues and automakers such  as Hyundai Motors , which rose 1.4 percent.

 Shares of resources companies in Asia were also bolstered by a jump in metals prices after Chinese weekend data showed  industrial production remained buoyant.

 Many investors had feared China would raise interest rates last week to curb mounting inflationary pressures, but the  central bank opted instead to further increase the amount of  extra capital top banks must hold.

 An official newspaper said on Tuesday China would probably target the same level of new loans next year as in 2010, a  further indication that policy could be slightly looser than  expected.

 “The Chinese economy is very big now and a target of 7.5 trillion yuan in new loans will not trigger all-round  inflation,” the front-page report in the Chinese Securities  Journal said.

 A Reuters poll released on Monday showed economists still see a rate rise in China in coming months, but expect  policymakers to rely more on lending controls in 2011 as their  weapon of choice in the fight against mounting price  pressures.

 MOODY’S WARNING RATTLES DOLLAR

 The dollar remained soft after a warning from Moody’s overnight.  The credit ratings agency said it could move a step closer to cutting America’s triple-A rating if the Obama  administration’s deal to extend tax cuts wins Congressional  approval and pushes up already bloated debt levels.  

 The dollar index against a basket of other major currencies slipped marginally to 79.24, having plumbed  a three-week low of 79.101 on Monday. The euro was at $1.3386,  having risen as high as $1.3433 .

 Helped by high metals prices, commodity currencies shone.

The Australian dollar almost hit a month high and could come  close to testing parity. It hovered at $0.9959 .

 In New York on Monday, the broad S&P 500 index closed flat and the Dow ended just above break-even  amid signs U.S. stocks may be nearing overbought levels, and  on investor caution about staking out new positions heading  into year-end.

 Oil prices recouped early losses to stand little changed at around $88.55 a barrel ahead of U.S. oil industry  stock data.