GLOBAL MARKETS-Shares rebound on hopes for U.S. stimulus, new Europe steps

by on July 26, 2012 5:46 am BST

Thu Jul 26, 2012 1:46am EDT

* MSCI Asia ex-Japan adds 0.6 pct, Nikkei rises 0.8 pct

* Slight easing in euro zone debt yields spurs bargain

* Euro off lows vs dollar and yen, but capped by Europe woes

* European shares likely to open barely changed

By Chikako Mogi

TOKYO, July 26 (Reuters) – Asian shares rose on Thursday on
bargain hunting as hopes grew for more U.S. stimulus to support
growth and new European measures to contain the euro zone’s debt
woes, but sentiment remained frail.

European stocks will likely open narrowly mixed, reflecting
Asia’s cautiously positive mood and nearly flat U.S. stock
futures which signals a mild start on Wall Street.

Financial spreadbetters called the main indexes in London
, Paris and Frankfurt to open between a
0.1 percent fall and a 0.1 precent rise.

Worries about the euro crisis eased somewhat on comments
from European Central Bank Governing Council member Ewald
Nowotny who said there are arguments for giving Europe’s
permanent rescue fund a banking licence — an idea that the ECB
has rejected so far. A banking licence would boost the fund’s
firepower by allowing it access to cheap ECB funding.

Borrowing costs in Spain, which is facing snowballing
regional debts and a banking sector struggling to clean up bad
loans, retreated slightly on Wednesday while safe-haven U.S.
Treasury yields also inched up from historic lows.

Risk assets plummeted over the past week as concerns
intensified that Spain, the euro zone’s fourth-largest economy,
might need to seek a full bailout. If it did, that would
threaten to deplete Europe’s rescue fund just when other highly
indebted states were fighting to fend off surging borrowing

“The slight pull-back in euro zone borrowing costs fed some
relief, giving investors an impetus to hunt for cheapened stocks
as Asian equities have been oversold in terms of valuations,”
said Hirokazu Yuihama, a senior strategist at Daiwa Securities.

“Caution will prevail as long as the European woes simmer
and defensive sectors such as telecommunication and consumer
goods will outperform growth-sensitive sectors,” he said.

According to Yuihama, however, Asia should be more
attractive than elsewhere for investors as the region’s
“relative cheapness has been widening since around May.”

MSCI’s broadest index of Asia-Pacific shares outside Japan
, which fell the last four sessions, was up 0.6
percent at 401.95. The index hit a one-month low of 397.44 on
Wednesday, but despite daily swings, its downside has been
recovering from 2012 lows of 379.17 hit in early June.

Korean shares rebounded from lows for the year hit
on Wednesday, climbing 0.8 percent, while Shanghai shares also
managed a 0.3 percent gain after closing at their lowest
since March 2009 on Wednesday. Japan’s Nikkei gained 0.8
percent after touching a seven-week low on Wednesday.

Data showing new U.S. home sales in June posted their
biggest drop in more than a year and prices resumed their
downward trend reinforced views the U.S. Federal Reserve would
consider more easing steps to underpin a delicate recovery.

“It feels as though risk assets will probably have
reasonable support, given central bankers may be warming to
further action, and this leads us into next week where the FOMC
and ECB meet,” said Chris Weston, a dealer at IG Markets in


The euro eased 0.1 percent to $1.2147 after rising
against the dollar for the first time in six days on Wednesday.

It was off a 25-month low of $1.2042 hit on Tuesday but also
below a peak on Wednesday of $1.21705. Against the yen, the euro
firmed to 94.98 yen, inching away from a low of 94.12
yen touched on Tuesday, its weakest since November 2000.

The dollar held steady against the yen above 78 yen.

“The fact is the ECB is still quite divided on the issue of
giving the ESM a banking license,” said Mitul Kotecha, head of
global foreign exchange strategy for Credit Agricole in Hong
Kong, referring to the euro zone’s rescue fund.

“I think if anything, any bounce that this has induced would
be short-lived. I don’t see the euro sustaining gains,” he said.

At the same time, the euro’s downside against the dollar may
be limited ahead of the Fed’s meeting next week, given growing
speculation that the Fed might take some action next week,
Kotecha said.

Data released on Wednesday underscored the damage the
three-year debt crisis has inflicted on Europe’s economic

German business sentiment dropped in July for a third
straight month to its lowest level in more than two years,
according to the latest survey by the Munich-based Ifo think
tank, while British economic output shrank much more than
expected in the second quarter, official data showed.

The top 10 U.S. prime money market funds reduced their euro
zone debt holdings to 8 percent of their combined assets in
June, the lowest level since 2006 as concerns over Spain
intensified, Fitch Ratings said in a report on Wednesday.

A general easing in risk aversion helped to improve Asian
credit markets, narrowing the spread on the iTraxx Asia ex-Japan
investment-grade index by 2 basis points.