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GLOBAL MARKETS-Asian shares turn higher but wary of Spain, Greece debt

by on September 27, 2012 3:29 am GMT
 

Wed Sep 26, 2012 11:29pm EDT

* MSCI Asia ex-Japan erases early losses, Nikkei off 2-week
lows

* China shares rebound on bargain hunt as Shanghai neared
critical level

* Euro near 2-week low vs dollar, yen near 1-week high vs
dollar

* Commodities, gold recover as dollar index inches lower

By Chikako Mogi

TOKYO, Sept 27 (Reuters) – Asian shares rebounded on
Thursday but sentiment was vulnerable due to uncertainty over a
bailout for Spain and signs of Europe struggling to find a
unified approach to tackling its debt crisis as global lenders
wrangled over Greek restructuring.

A recovery in Chinese shares pulled the MSCI index of
Asia-Pacific shares outside Japan out of the
negative territory to trade up 0.5 percent. The index fell to
its lowest point since Sept. 14 on Wednesday, wiping out almost
all the gains made after markets rallied on the U.S. Federal
Reserve’s new quantitative easing stimulus to boost job
creation.

Worried about the impact of the global economic slowdown on
corporate earnings, investors drove the Shanghai Composite
down to its lowest close since February 2009 on
Wednesday at 2004.2, levels perceived by market players as key
in prompting authorities to take steps to prop up the market.

Hong Kong and domestic Chinese stock markets have also been
undermined by a lack of action by their central banks in the
wake of global easing from the United States to Japan.

China cut interest rates twice in June and July and lowered
banks’ reserve requirement ratio three times since late 2011,
but has refrained from cutting interest rates or RRR since July,
though it has kept money markets liquid.

Hong Kong shares rose 0.5 percent, with traders
saying prices were lifted by some adjustments ahead of the
third-quarter end and short covering in bank stocks, while
Shanghai shares inched up 0.3 percent.

“Shanghai shares approaching the low end to the downside
prompted investors to buy back shares as the level reflects an
excessively bearish sentiment and offers a bargain,” said
Hirokazu Yuihama, a senior strategist at Daiwa Securities.

“But there won’t be much to the upside as worries about
Spain will cap prices,” Yuihama said.

“Markets may be hoping for a central bank stimulus, but I
think China’s aim is to achieve a soft landing and not to beef
up fundamentals greatly. China may be feeling that measures
taken so far are sufficient to achieve that goal,” he added.

Instead cutting interest rates or lowering banks’ reserve
rquirements further, China has been pumping in ample funds to
the markets.

China’s central bank injected a net 365 billion yuan ($57.92
billion) into money markets this week, traders said, the largest
weekly injection in history, as regulators struggle to maintain
liquidity without producing inflation as forex inflows slow.

Japan’s Nikkei stock average bucked the broader
Asian trend, hovering just above a fresh two-week low.

SPAIN UNVEILS BUDGET

Despite worries about Europe denting sentiment, asset prices
broadly remained in recent ranges.

“Economic data seems encouraging in the U.S., concern is
rising in Asia and some element of disbelief on the European
scene,” Sebastian Galy, strategist at Societe General, said in a
note. “That disbelief in Europe needs to be more severe for an
actual full scale correction, though rising volatility may be
enough to trigger a further forced reduction in some peripheral
assets.”

The euro traded at $1.2873, not far from a two-week
low of $1.2835 touched on Wednesday.

The yen was at 77.67 yen, staying near a one-week
high of 77.585 hit on Wednesday.

Growing investor risk aversion lifted the CBOE Volatility
index, a gauge of expected volatility in the Standard &
Poor’s 500 index, up 8.94 percent on Wednesday for its
biggest daily increase in 2-1/2 weeks, after it hit a three-week
high.

As protestors against severe austerity measures took to the
streets and clashed with police in Spain and Greece, European
equities saw their worst day in two months. Spanish 10-year bond
yields rose back above 6 percent for the first
time since the European Central Bank said on Sept. 6 that it
would buy sovereign bonds of euro zone states which request a
bailout, aiming to trim borrowing costs.

Spanish Prime Minister Mariano Rajoy presents a series of
reforms and a tight 2013 budget on Thursday, while gradually
moving towards seeking a sovereign bailout, which would activate
the ECB’s bond-buying scheme.

Spain also faced Moody’s latest credit rating review and an
independent audit’s stress test showing how much more money
Madrid will need to strengthen its shaky banking sector.

Greece’s international lenders remained divided over how to
approach Athens’ debt restructuring as creditors seek to
minimise losses on their exposure.

The dollar index measured against a basket of
currencies eased 0.1 percent to 79.789, off a two-week high of
80.012 reached on Wednesday. A weaker dollar helped a modest
recovery in dollar-denominated industrial commodities such as
oil and copper, as well as gold.

U.S. crude inched up 0.2 percent to $90.18 a barrel
and Brent edged up 0.1 percent to $110.14. London copper
was up 0.3 percent at $8,142 a tonne. Spot gold
traded up 0.1 percent to $1,753.60 an oune.

Not all Asian countries are in need of immediate stimulus,
however, as the Philippines’ central bank governor told Reuters
on Wednesday. He said the Phillipines’ domestic demand remained
buoyant despite the global slowdown dampening exports.

Asian credit markets were marginally firmer, with the spread
on the iTraxx Asia ex-Japan investment-grade index
narrowing by one basis point.