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GLOBAL MARKETS-ECB’s Draghi warms risk appetite, shares rally

by on July 27, 2012 2:38 am BST
 

Thu Jul 26, 2012 10:38pm EDT

* MSCI Asia ex-Japan climbs 1.3 pct, Nikkei jumps 1.3 pct

* Euro steadies off lows versus dollar, yen

* Expectations heighten for ECB action at next week’s
meeting

By Chikako Mogi

TOKYO, July 27 (Reuters) – Asian shares rallied on Friday,
led higher by a strong result from smartphone maker Samsung
Electronics, after the European Central Bank boosted market
sentiment and steadied the euro by signalling its resolve to
defend the euro zone.

Markets rose sharply across the board after ECB President
Mario Draghi said on Thursday the bank would do whatever was
necessary to protect the euro zone from collapse, raising
expectations it will move quickly to tackle skyrocketing
borrowing costs in countries like Spain.

Analysts said Draghi’s comments, coming ahead of the bank’s
policy-setting meeting next week, could signal a resumption of
the ECB’s sovereign bond-buying scheme known as the Securities
Markets Programme which has not been used for months.

“Expectations have heightened after Draghi’s remarks for the
ECB to do something next week, along with an expected rate cut,”
said Yuji Saito, director of foreign exchange at Credit Agricole
Bank in Tokyo.

“The euro, for now, is spared from being tested lower, with
the U.S. also coming under pressure to do something to support
its growth,” he said.

The euro traded at $1.2278, after Draghi’s comments
pushed it to a two-week high of $1.2330 on Thursday, well above
a 25-month low of $1.2042 hit earlier in the week. Against the
yen, the euro was at 96.10 yen, well above 94.12 yen
touched on Tuesday, its weakest since November 2000.

MSCI’s broadest index of Asia-Pacific shares outside Japan
climbed 1.3 percent, pulled higher by a 2.6
percent gain in the technology sector.

Korean shares outperformed their Asian peers to rise
1.8 percent after Samsung Electronics Co, the
world’s top technology firm by revenue, posted a record profit
for the June quarter, and screenmaker LG Display
beat expectations for its second-quarter results.

Samsung was last trading up 3.9 percent at a five-week high.

Japan’s Nikkei stock average gained 1.3 percent, as
speculators bought back battered cyclical stocks in favour
defensives.

The euro’s rally against the dollar encouraged investors to
buy dollar-denominated commodities such as oil, copper and gold,
while easing fears about Spain’s fiscal plight drove Spanish
10-year bond yields below 7 percent, after they
hit a euro-era peak above 7.6 percent earlier in the week.

Yields above 7 percent are widely seen as unsustainable for
the government to fund itself, and led Greece, Portugal and
Ireland to seek bailouts.

US GDP EYED

Market sentiment had been improving somewhat after ECB
policymaker Ewald Nowotny said earlier in the week there was
merit in giving Europe’s permanent rescue fund a banking licence
to let it tap central bank funds. Draghi and others have
previously rejected that option.

The euro was further supported by expectations that the U.S.
Federal Reserve could also offer some additional stimulus at its
policy meeting next week to ensure a delicate U.S. recovery
remains on track.

“The Fed stands very little chance of achieving its goals on
employment without further stimulus,” said Andrew Wilkinson,
chief economic strategist at Miller Tabak & Co. In New York.

Thursday’s data showed new U.S. claims for jobless benefits
fell last week to near a four-year low, and overall orders for
long-lasting U.S. manufactured goods rose more than expected in
June. But other data on housing and jobs markets has
disappointed.

The U.S. gross domestic product for the second quarter, due
out later on Friday, likely grew at a 1.5 percent annual rate,
putting it on track for the slowest growth since the second
quarter of 2011.

The euro’s upside, however, will be capped due to
uncertainty surrounding Greece’s restructuring efforts as its
global lenders scrutinise conditions for twice-bailed out Athens
to keep receiving aid.

European Commission President Jose Manuel Barroso said on
Thursday that he was convinced Greece would continue in the euro
zone and would get support as long as it continued on the path
of reforms. He also said a proposal for an euro zone banking
union will be made in early September.

“The ECB can thus help buy time, a role that we have long
believed the central bank would be prepared to do. Resolution,
however, will fall to governments and we see more muddle-through
ahead,” analysts at Societe Generale said in a research note.

Asian credit markets firmed with risk appetite returning,
narrowing the spread on the iTraxx Asia ex-Japan
investment-grade index by 7 basis points.

Oil held on to previous day’s gains, with U.S. crude
up 0.1 percent at $89.49 a barrel and Brent rising 0.2
percent to $105.49 a barrel.