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GLOBAL MARKETS-Shares extend gains on stimulus hopes

by on July 30, 2012 12:24 am GMT
 

Sun Jul 29, 2012 8:24pm EDT

* MSCI Asia ex-Japan edges up, Nikkei opens 1.1 percent
higher

* Euro off three-week highs, dollar index steadies

By Chikako Mogi

TOKYO, July 30 (Reuters) – Asian shares extended their gains
on Monday, supported by expectations the Federal Reserve and the
European Central Bank will deliver new measures to underpin
their fragile economies.

MSCI’s broadest index of Asia-Pacific shares outside Japan
edged up 0.5 percent, after climbing 2.2 percent
on Friday for its biggest daily rise in a month.

Japan’s Nikkei stock average opened up 1.1 percent, after
ending up nearly 1.5 percent on Friday, also its biggest daily
gain in a month.

The turnaround in market sentiment from recent heavy selling
was triggered last week when ECB President Mario Draghi pledged
he would do whatever it takes to safeguard the single currency.

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 facing surging yields
that threaten to derail fiscal restructuring efforts.

Investors held their risk appetite, pushing the Australian
dollar as high as $1.0498 in early Asian trade on
Monday. The dollar index, measured against a basket of
major currencies, hovered near Friday’s three-week low.

But the euro traded down 0.3 percent at $1.2297,
slipping from 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.

Uncertainty persisted in Europe about specific action,
despite authorities speaking of the urgency to tackle Spain’s
fiscal woes which drove its 10-year government debt yield to
euro-era highs of 7.78 percent last week, while Greece continued
with its battle to convince creditors of its debt-cutting plans.

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.

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.

“It (the GDP) contained enough weakness to support the Fed’s
commitment to an exceptionally long period of nearly zero
overnight interest rates,” said Richard Hastings, macro
strategist at Global Hunter Securities.

“But 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,” he said.

U.S. Treasury Secretary Timothy Geithner will travel to
Germany to meet with his German counterpart and ECB head Draghi
on Monday.

Euro zone leaders will cooperate with the ECB to show their
commitment to the stability of the euro, and would in the next
few days decide on measures to tackle surging Spanish bond
yields, Eurogroup head Jean-Claude Juncker said in interviews
with European newspapers.

On Greece, European policymakers are working on options that
may include having the ECB and national central banks take huge
losses on the value of their bond holdings, officials said.
Greek political leaders have agreed on most of the austerity
measures demanded by its creditors, a source close to the talks
said on Sunday.

Speculators cut their bets for the euro’s further decline
while also reducing their bets in favour of the U.S. dollar to
the lowest in 2-1/2 months in the latest week to July 24, data
showed on Friday. Their yen net longs have more than doubled
while Australian dollar long jumped.