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TOKYO (Reuters) - Asian shares rose on Thursday as investors were encouraged by President Donald Trump's measured tone in his first speech to Congress, which sent Wall Street stocks sharply higher, while growing bets on a U.S. rate hike this month buoyed the dollar.
MSCI's broadest index of Asia-Pacific shares outside Japan .MIAPJ0000PUS rose 0.2 percent, led by rebound in Australian shares .
Japan's Nikkei .N225 rose 1.3 percent to a 14-month high.
MSCI's broadest gauge of the world's stocks covering 46 countries .MIWD00000PUS rose nearly 1 percent to a record high, after posting its biggest daily gain in almost three months.
Trump pledged to deliver "massive" tax relief to the middle class and corporate tax cuts, to spend heavily on infrastructure and to ease regulations -- steps that have helped to push U.S. stocks higher since his election victory in November.
While Trump gave few new details on his tax or spending plans, investors were encouraged by what they saw as a less confrontational tone as he tries to push his agenda through a Congress reluctant to widen the government's budget deficit.
A rate hike by the Federal Reserve later this month also would signal policymakers' growing confidence in U.S. and global economic expansion, as indicated by generally upbeat factory activity surveys on Wednesday.
The S&P financial index .SPSY soared 2.84 percent after a few key Federal Reserve officials including New York Fed President William Dudley and San Francisco Fed President John Williams, hinted at an interest rate hike this month.
Usually-dovish Fed Governor Lael Brainard also joined the chorus, saying an improving global economy and a solid U.S. recovery mean it will be "appropriate soon" for the Fed to raise rates.
Government data indeed showed on Wednesday the largest monthly increase in inflation in four years eroded households' purchasing power, supporting the case for a rate hike.
"The U.S. economy is strong enough to allow the Fed to raise rates. And then we are going to have one trillion dollar public spending," said a trader at a European bank.
"Under such conditions, we are likely to see a gradual rise in U.S. stocks, with volatility remaining low, until the Fed overkills the economy," he said.
U.S. Treasuries yield jumped, with the two-year yield hitting a more than seven-year high of 1.308 percent US2YT=RR.
Fed Funds rate futures FFH7 FFJ7 are now pricing in about an 80 percent chance that the Fed will bump up interest rates by 0.25 percentage point at its policy meeting on March 14-15, compared to around 30 percent at the start of this week.
More Fed policy-setters, including Chair Janet Yellen and Vice Chair Stanley Fischer, will speak on Friday, likely providing further signals on the Fed's policy path.
In Europe, the premium investors demand for holding French bonds over German bonds shrank to the smallest in a month after scandal-hit French presidential candidate Francois Fillon vowed to stay in the election fight.
That is perceived to contribute to limiting the chance of a victory by far-right National Front leader Marine Le Pen, who could pull the country out of the euro zone and the European Union.
In the currency market, the dollar benefited from rising expectations of a Fed rate hike.
The dollar's index against a basket of six major rivals .DXY rose to its highest level in seven weeks.
The British pound sank to a six-week low of $1.2270 GBP=D4 as disappointing UK economic data added to political nerves that have begun to weigh on the currency again after last year's Brexit vote.
Oil prices CLc1 loitered within a familiar range, as record high U.S. crude supplies tempered support from evidences that OPEC producers are complying with an agreement to cut production.
Editing by Kim Coghill