GLOBAL MARKETS-Asian shares rise on relief over Spain

by on September 28, 2012 12:47 am BST

Thu Sep 27, 2012 8:47pm EDT

* MSCI Asia ex-Japan edge up 0.2 pct, Nikkei opens up 0.4

* Euro steadies off two-week lows

* Spain’s economic reform and budget soothe sentiment

By Chikako Mogi

TOKYO, Sept 28 (Reuters) – Asian shares rose on Friday on
hope economic reform and budget plans unveiled by Spain will
help the debt-saddled nation manage its debt imbalances, in a
move seen as an effort to pre-empt the likely conditions of
international assistance.

Global stocks, the euro and commodities rose while the
dollar fell on Thursday after Spain announced a detailed
timetable for economic reform and a budget based mostly on sharp
spending cuts rather than tax hikes.

Madrid is talking to European Union authorities about the
terms of a possible aid package, which would pave the way for
initiating the European Central Bank’s bond-buying programme
aimed at easing the country’s borrowing strains.

The MSCI index of Asia-Pacific shares outside Japan
was up 0.2 percent, after jumping on Thursday on
a spike in Chinese shares as speculation for stimulus spread.
Australian shares were nearly flat and South Korean
stocks rose 0.5 percent.

Japan’s Nikkei stock average opened up 0.4 percent
after touching a two-week low the day before.

The euro traded at $1.2912, recovering from a
two-week low of $1.2828 touched on Thursday.

The yen hit its highest in nearly two weeks against the
dollar of 77.56 yen earlier on Friday, after the dollar
index measured against a basket of currencies fell 0.4
percent on Thursday for its biggest daily drop in two weeks.

“Risk is primed for a comeback, and the AUD (Australian
dollar) may be the biggest beneficiary,” Neal Gilbert, currency
strategist at GFT Forex in New Jersey, in a note.

“If Asia is as satisfied with the Spanish Budget Plan as the
rest of the world, a run back up to resistance from last week at
1.0520 may be in order,” he said, referring to the Australian
dollar. The Aussie, widely seen as a gauge for investor
risk appetite, steadied at $1.0434 on Friday.

Asian credit markets were firmer early on Friday, with the
spread on the iTraxx Asia ex-Japan investment-grade index
narrowing by two basis points.

Barclays Capital analysts noted that despite bad news, the
losses in Spanish assets over the past two months were limited.

“This supports our view that the backstops in place will
likely be effective in curtailing tail risks,” they said.

Ten-year Spanish bond yields dipped below 6
percent on Thursday after topping that level on Wednesday for
the first time since the ECB unveiled the bond-buying plan on
Sept. 6.

Spain faces a Moody’s credit rating review this week and the
release of a stress test of its banking sector on Friday which
will reveal how much more money is needed to recapitalise its

Ratings agency Egan-Jones on Thursday cut Spain’s sovereign
rating further into junk status, citing the country’s faltering
banks and struggling regional governments.


Reflecting choppy market sentiment, the CBOE Volatility
index which measures volatility expected in the Standard
& Poor’s 500 index fell 11.7 percent on Thursday for its
sharpest daily decline in three weeks, just a day after the
index posted its biggest daily rise in 2-1/2 weeks.

Talk authorities would offer measures to prop up the wobbly
Chinese stock markets lifted the Shanghai Composite Index
up as much as 3 percent on Thursday, one day after the
index hit its lowest point since February 2009.

Sentiment was also buoyed by China’s central bank injecting
a record amount of liquidity into the money markets this week to
ease funding strains as China heads for a week-long holiday.

Following fresh monetary stimulus unveiled by the United
States and Japan this month, markets have also retained
expectations for China to cut interest rates to spur growth, as
weakening demand in China has damaged global economies and
weighed on investor sentiment.

Beijing approved billions of dollars worth of infrastructure
projects this month.

But China’s biggest listed steelmaker, Baoshan Iron & Steel
Co, which has suspended output at a loss-making
plant, expressed doubt that attempts to prop up the slowing
economy would revive demand in the world’s biggest market for
the metal. A slump in iron ore prices had triggered a broad
sell-off in riskier assets.

U.S. crude rose 0.4 percent to $92.23 a barrel and
Brent also rose 0.4 percent to $112.43.