Asian markets buoyed by China easing, Greece hopes

TOKYO Mon Feb 20, 2012 11:06am IST

Passersby look at an electronic board displaying a rise in major market indices around the world, outside a brokerage in Tokyo October 27, 2011. REUTERS/Issei Kato/Files

Passersby look at an electronic board displaying a rise in major market indices around the world, outside a brokerage in Tokyo October 27, 2011.

Credit: Reuters/Issei Kato/Files

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TOKYO (Reuters) - Markets across the assets rose on Monday as policy easing by China and expectations that Greece will secure a second bailout buoyed investor appetite for riskier assets, sending U.S. crude and copper up nearly 2 percent.

MSCI's broadest index of Asia Pacific shares outside Japan rose 1.1 percent to its highest in 6-1/2 months. Japan's Nikkei gained as much as 1.8 percent to its highest since early August, as a weaker yen also lifted sentiment.

Financial bookmakers expected European stocks to follow the lead set by Asian shares, with spreadbetters calling the main indexes in London, Paris and Frankfurt to open 0.8 percent to 1.1 percent higher.

China's central bank on Saturday cut its reserve requirement ratio (RRR) -- the amount of cash banks must hold in reserves -- boosting lending capacity by an estimated 350-400 billion yuan.

"Much of the credit boost from China's reserve ratio cut is expected to be poured into new infrastructure and capital investments, lifting prices and demand for raw materials," said Ham Sung-sik, an analyst at Daishin Securities in Seoul.

Optimism about a deal that will keep Greece afloat for now, and conviction that central banks around the world are committed to supporting growth through ultra-easy policy, fuelled buying in base metals such as copper, oil, precious metals and commodity-linked currencies such as the Australian dollar.

The cut, which analysts said had been long awaited, came just days after Japan strengthened monetary easing, and as risk trade was increasingly underpinned by expectations that the European Central Bank will add massive amounts of liquidity at its second funding operation later this month.

"While the cut suggests that policymakers may be mildly concerned over the slowing pace of economic activity, overall, we think the RRR cut will most likely result in an acceleration of economic activity and that China's Q1 growth is likely to surprise us on the upside," said ANZ in a research note.

Data on Monday showed Japan logged a record trade deficit in January with China as exports dropped by a fifth, underscoring concerns about how sharply China is slowing.

GREEK HOPES

Asian credit markets firmed as risk appetite returned, with spreads on the iTraxx Asia ex-Japan investment grade index tightening by 7 basis points.

The yen hit a 6-1/2-month low against the dollar of 79.89, while the euro rose 0.5 percent to $1.3209. The Australian dollar gained nearly a full cent from late New York levels to a high of $1.0817.

Euro zone finance ministers are expected to approve the 130-billion-euro rescue programme for Greece later on Monday. While scepticism persists over Athens' commitments -- including implementing 3.3 billion euros of spending cuts and tax rises -- officials said momentum was behind approving the deal.

"We expect Greece to make headway towards receiving the funds needed to avoid a near-term default and for markets to remain constructive on risk while keeping an eye on the downside," Barclays Capital said in a note.

Senior euro zone finance ministry and ECB officials discussed the final details for Greece's second bailout since 2010, including a debt sustainability analysis critical to the International Monetary Fund, over a conference call on Sunday.

Without the bailout, Greece would miss a crucial March 20 deadline to pay a 14.5 billion euro bond redemption.

Stakes are high if there is no progress.

"Anything less than a firm narrative that a bailout is winging its way over to a Greek escrow account, with additional rhetoric that a Greek haircut is 'an exceptional case', could see a sharp move lower in risk," said IG Markets in a note.

GOLD/BRENT RATIO FALLS

The price ratio of gold relative to Brent crude oil fell to its lowest level since early January, a signal that technical analysts regard as bullish for riskier assets such as shares and commodities.

"Declining Gold/Oil ratios have historically proven positive for global stocks and risk appetite," Ashraf Laidi, chief global strategist at City Index Group, said, adding that equities could rally further if the gold/Brent ratio falls below its 200-week moving average. The ratio stood around 14.34 on Monday, just above the 200-week moving average of 14.23.

Gold rose 0.7 percent, a slower pace relative to other asset classes, suggesting the market may be near a top.

Growing investor confidence over risk-taking eclipsed some of gold's safe-haven appeal, with money managers in gold futures and options reducing their net long position in the week of February 14 for their first decline in five weeks.

U.S. crude rose about 2 percent to a 9-month high above $105 barrel, while Brent rose over 1 percent to above $121 a barrel to an 8-month high peak. Crude prices were boosted after Iran halted oil sales to Britain and France.

(Additional reporting by Reuters FX analyst Krishna Kumar in Sydney, Clement Tan in Hong Kong and Joonhee Yu in Seoul)

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