TOKYO Asian shares advanced on Friday as encouraging Chinese data confirmed a recovery was on track in the world's second largest economy, cementing positive sentiment after global equities rose overnight on firm U.S. labour and housing market reports.
"The data reaffirmed views that China will not see a hard landing as feared at one point and that the economy is on a more solid footing than last year and resuming a sustainable growth level of 7 to 8 percent," said Tomomichi Akuta, senior energy researcher at Mitsubishi UFJ Research and Consulting in Tokyo.
China's economy grew 7.9 percent in the fourth quarter of 2012 from a year earlier, official data showed, strengthening from 7.4 percent in the third quarter -- the lowest since the depths of the global financial crisis.
The bounce snapped seven straight quarters of slowing expansion, beating market forecast of 7.8 percent growth, and augurs well for risk-on trade amid an improving outlook for the global economy.
Other Chinese data released showed industrial output grew 10.3 percent in December from a year ago, above an expected 10.1 percent increase, and retail sales in December rose 15.2 percent on the year ago, also topping an estimated 14.9 percent rise.
"The Chinese data, along with signs of recovery in the United States and relative calm in the euro zone give a sense of stability to markets and raise hopes for stronger demand for key materials, as the focus shifts to fundamentals," Akuta said.
The MSCI's broadest index of Asia-Pacific shares outside Japan rose 0.5 percent, snapping a three-day losing streak, carrying upbeat momentum after the Standard & Poor's 500 Index rallied to a five-year closing high.
Australian shares added 0.3 percent, after closing Thursday at a 20-month high when an unexpected fall in Australian employment in December narrowed the odds of another interest rate cut. Market sentiment was also warmed by the solid data from China, Australia's biggest trading partner.
Hong Kong shares rose 0.7 percent and Shanghai shares gained 0.5 percent.
In Tokyo, the benchmark Nikkei average surged 2.2 percent as the yen resumed its downtrend after a brief pause in recent heavy selling. A weak yen helps improve earnings prospects for Japanese exporters.
The stronger equities boosted Asian credit markets, tightening the spread on the iTraxx Asia ex-Japan investment-grade index wider by 3 basis points.
YEN WEAKNESS RESUMES
The euro and the dollar gave up some of the gains from Thursday when the currencies advanced to fresh highs against the yen on the back of the strong U.S. data and mounting expectations for bolder easing by the Bank of Japan (BOJ) at its meeting next week.
On Thursday, the dollar rose to 90.14 yen, its highest since June 2010, while the euro hit 120.615 yen, its highest since May 2011. The dollar was at 89.75 yen on Friday and the euro was at 119.92 yen.
Over the past two months, the yen has come under strong pressure on expectations that the new Japanese government will pursue massive fiscal spending and push for more aggressive easing from the BOJ to drive Japan out of years of deflation and economic slump.
"Foreign investors are becoming increasingly eager to add more Japanese stocks," said Tetsuro Ii, chief executive of Commons Asset Management. "Abe has been successful in lifting investor sentiment. A good result must be delivered, and we still don't know about that, but the fact that he boosted investors' risk appetites is very positive."
Citing sources familiar with the central bank's thinking, Reuters reported on Thursday that the BOJ next week will consider removing the 0.1 percent floor on short-term interest rates and commit to open-ended asset buying until the 2 percent inflation target is reached.
However there is growing risk that the actual policy outcome next week may disappoint some in the market.
"We think there is some risk of disappointment at the BOJ meeting and scope for a yen rally. It is now consensus that the BOJ will move to a 2 percent inflation target. However, more aggressive measures may not come until closer to the nomination of the new governor/deputy governors in Q2," said Kiran Kowshik, strategist at BNP Paribas.
Investor nervousness was evident in the options market, with dollar/yen one-month implied volatility hitting its highest since September 2011 around 12.12 percent.
Interest in buying dollar options have been growing, and despite this week's brief respite, dollar/yen risk reversals showed a bias for yen puts/dollar calls hovering near a two-month high.
U.S. crude fell 0.3 percent to $95.19 a barrel, after rising on Thursday on the positive U.S. economic outlook. Brent futures was also down 0.2 percent to $110.93.
(Additional reporting by Ian Chua in Sydney and Ayai Tomisawa in Tokyo; Editing by Shri Navaratnam)
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