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GLOBAL MARKETS-Shares extend gains on stimulus hopes, euro capped

by on July 30, 2012 6:01 am BST
 

Mon Jul 30, 2012 2:01am EDT

* MSCI Asia ex-Japan rises to 3-week peak, Nikkei hits
1-week high

* Euro, Aussie slip from highs, dollar index firms

* European shares likely to rise

By Chikako Mogi

TOKYO, July 30 (Reuters) – Asian shares extended their gains
on Monday, supported by expectations the U.S. Federal Reserve
and European Central Bank will act to support their fragile
economies, but the euro fell as caution kept a firm grip on
sentiment.

European stocks look set to open firmer, but U.S. stock
futures eased 0.3 percent, signalling a weak start on
Wall Street. Financial spreadbetters called the main indexes in
London, Paris and Frankfurt as much as
1.1 percent higher at the open.

MSCI’s broadest index of Asia-Pacific shares outside Japan
rose as much as 1.2 percent to a three-week
high, after posting its biggest daily rise in a month on Friday
with a 2.2 percent climb.

Korean shares touched their highest in four weeks
while Australian shares rose to their highest in more
than two months. Japan’s Nikkei stock average was up 0.4 percent
after hitting a one-week high.

“Once again we’ve just seen the market prepping itself for
renewed growth coming through after the European Central Bank
meets on Thursday and decides what they’re going to do to help
restimulate the economy,” said Juliana Roadley, market analyst
at Commonwealth Securities.

ECB President Mario Draghi pledged last week he would do
whatever it takes to safeguard the single currency, triggering a
turnaround in market sentiment after a recent sell-off and set
the tone for some recovery in risk appetite.

His comments raised hopes the ECB, which holds its policy
meeting on Thursday, will act to ease borrowing strains for
Spain and other highly indebted countries by resuming its bond
buying programme.

Markets will keep a close on eye Italy’s auction of up to
5.5 billion euros in bonds on Monday to see if rising
expectations of bolder ECB policy moves could help ease
benchmark 10-year yields.

Investors were not fully convinced, however, amid
uncertainty about specific action.

The euro fell 0.4 percent to $1.2287, well below a
three-week high of $1.2390 touched on Friday. It slid to a
two-year low around $1.2042 last week before Draghi’s comments.

The dollar index, measured against a basket of major
currencies, inched up 0.1 percent, crawling away from Friday’s
three-week low, while the Australian dollar, which
benefits from an improvement in risk sentiment, slipped from the
day’s high at $1.0498.

Jeff Sica, chief investment officer of Sica Wealth
Management, was sceptical the optimism would be sustained.

“The problem being that central bankers do not have the
ability to do ‘whatever it takes’ to save the euro. They only
have the ability to undermine their credibility by making
promises they cannot keep,” he said, adding that the euro’s
recent strength has been based on short covering and its short
term appreciation would be temporary.

HOPES FOR FED

The U.S. central bank also holds a policy meeting on Tuesday
and Wednesday, with speculation rising the Fed might do more to
bolster recovery, after data showed U.S. second-quarter gross
domestic product expanded at a 1.5 percent annual rate, the
weakest pace of growth since the third quarter of 2011.

Growth was weak enough to support the Fed’s commitment to an
exceptionally long period of nearly zero rates, but more worring
was weakness this quarter, said Richard Hastings, macro
strategist at Global Hunter Securities.

“The Fed’s real catalyst comes from the most recent data in
July, for Q3, which suggests a truly weaker story with greater
risks of the U.S. drifting towards growth rates of 0.5 percent
and nearly recessionary conditions in Q1 2013,” Hastings said.

U.S. Treasury Secretary Timothy Geithner will fly to Germany
to meet with his German counterpart and Draghi later on Monday.

Asian credit markets firmed slightly, narrowing the spread
on the iTraxx Asia ex-Japan investment-grade index
by 3 basis points.

Oil rose on stimlus hopes, with Brent up 0.2 percent
at $106.70 a barrel and U.S. crude up 0.4 percent at
$90.51 a barrel.