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GLOBAL MARKETS-Shares rise on guarded stimulus hopes from ECB, Fed

by on July 31, 2012 3:22 am BST
 

Mon Jul 30, 2012 11:22pm EDT

* MSCI Asia ex-Japan rises 1 pct to highest since May 11

* Japan PMI falls at fastest rate since 2011 quake

* Aussie holds near record highs vs euro, hits 4-month high
vs USD

By Chikako Mogi

TOKYO, July 31 (Reuters) – Asian shares rose on Tuesday on
hopes for further stimulus from the European Central Bank and
the U.S. Federal Reserve, both of which hold policy meetings
this week, but scepticism about the long-term effectiveness of
any ECB actions capped the euro.

MSCI’s broadest index of Asia-Pacific shares outside Japan
gained 1 percent to its highest since May 11 and
was set for a monthly gain of 3.2 percent, compared to a near
flat showing last July.

The impact of the three-year euro debt crisis on Asia was
evident on Tuesday, however, with Japan’s Manufacturing
Purchasing Managers Index (PMI) falling at its fastest pace
since last year’s earthquake and tsunami, as demand for Japanese
goods slows in Europe and China.

Market sentiment has been underpinned by speculation the
ECB, at a meeting on Thursday, may resume its bond buying
programme to force down rising Spanish and Italian borrowing
costs, but uncertainty persists partly because Germany has
repeated its opposition to such a step.

The Fed has also come under greater pressure to act as early
data for the third quarter has disappointed, but many
economists do not expect further easing until September. The Fed
starts a two-day interest rate policy meeting on Tuesday, ahead
of a key nonfarm payrolls report due on Friday.

“There is a bit of positive sentiment supporting the market.
The optimism stems from the upcoming central bank meetings and
local data is helping too,” said Stan Shamu, market strategist
at IG Markets, referring to Australia’s smaller-than-expected
decline in building approvals in June.

U.S. stocks finished mostly flat on Monday as investors
paused following the best two-day run this year, while European
shares hit three-month highs to end above a key technical level.

Japan’s Nikkei stock average rose 0.5 percent.

The euro edged up 0.2 percent to $1.2285,, still
below a three-week high of $1.2390 touched on Friday but well
above a two-year low around $1.2042 reached last week. The euro
was also up 0.2 percent against the yen at 95.95.

The Australian dollar hit a four-month high against the U.S.
dollar around $1.0530 on Tuesday and an all-time peak
versus the euro around A$1.1646 in offshore trade, as
speculation of monetary stimulus spurred investor appetite for
high-yielding currency.

But caution remained about the effect of any measures from
the ECB, given doubts about central bank action being sufficient
to resolve the euro zone’s fiscal woes.

“Even if the ECB resumes its bond buying programme, the rise
in the euro will likely just be met with selling,” said Hideki
Amikura, forex manager at Nomura Trust Bank, noting that the
euro would at best rise to around 98 yen, for example.

Expectations for imminent ECB action supported Italy’s debt
auction on Monday, with Rome selling 5.48 billion euros in
bonds, near the top of its planned issue range, and benchmark
10-year borrowing costs falling below 6 percent for the first
time since April. But 10-year yields stayed elevated near 6
percent.

DOUBTS REMAIN

Brent crude held above $106 per barrel but was
capped by caution among investors that any fresh stimulus
measures coming from the ECB or the Fed may not be enough to
revive stuttering economies.

Copper added 0.5 percent to $7,579.25 a tonne,
supported by stimulus hopes, a weaker dollar and gains in
riskier assets such as stocks.

Gold held steady at $1,623.21 an ounce, as investors
cautiously awaited monetary policy decisions, a key factor
driving bullion prices.

Gold has struggled to rise above key resistances on a lack
of strong investor appetite. Holdings at the world’s biggest
gold-backed exchange-traded fund, SPDR Gold Trust, saw
outflows for a fifth week in a row last week, marking its
longest such losing streak in about 18 months and on track for
its biggest monthly outflow this year in July of 30.9 tonnes.

Later on Tuesday, India’s central bank is expected to leave
interest rates unchanged, putting more weight on high inflation
than the slowest growth in almost a decade.

The euro zone debt crisis has damaged economic activity and
dampened morale around the world, with the Markit/JMMA Japan
Manufacturing Purchasing Managers Index falling to a seasonally
adjusted 47.9 in July from 49.9 in June.

On Monday, the European Commission’s sentiment index showed
the euro zone’s business sentiment fell to a 34-month low in
July, near levels last seen after the collapse of Lehman
Brothers.

Asian credit markets held steady, after the spread on the
iTraxx Asia ex-Japan investment-grade index fell to
its lowest since early April on Monday in thin trading volumes.