Asia: Stocks rally with Aussie on Japan boost before China trade

[HONG KONG] Asian stocks climbed with US index futures and Australia's dollar as a smaller-than-expected contraction in Japan's economy burnished optimism over the global outlook before an update on Chinese trade.

Gains in Japanese shares helped the Asia-Pacific benchmark to its second advance in seven days, with futures on Chinese equities also foreshadowing an up day. The stock rebound neutered demand for haven assets, with Japan's yen retreating with Treasuries and Australian government bonds. Ongoing concern over the global oil glut kept US crude below US$45 a barrel.

Asia's two largest economies are in focus Tuesday, with Japan's gross domestic product falling less than initially estimated amid a smaller decline in consumer spending. China, the epicenter of a risk-asset rout that has gripped global markets over the past month, is expected to report further declines in imports and overseas shipments. Euro-area GDP is also scheduled.

"The Chinese economy is slowing, despite the best efforts of policy makers who face a tricky balancing act of trying to prop the economy up versus putting in place structural reforms," Mark Smith, a senior economist in Auckland at ANZ Bank New Zealand Ltd, said in a note to clients. "The weaker emerging market backdrop looks to have been the catalyst behind more dovish central bank rhetoric of late, and hence the good old- fashioned central bank 'put' looks set to remain in place for a while yet."

The MSCI Asia Pacific Index added 0.1 per cent by 9:31 am in Tokyo, with Japan's Nikkei 225 Stock Average climbing the same amount, and Australia's S&P/ASX 200 Index up 0.9 per cent. Standard & Poor's 500 Index futures gained 1 per cent from Friday levels after a bounce back in European shares. The Aussie rose a second day with copper, while oil was down 3.1 per cent. The yen extended its retreat from a 1 1/2-week high as yields on 10-year Treasury notes climbed two basis points in their first day of trading this week.

Chinese index futures signaled gains of at least 0.5 per cent, after traders took solace from the fact the Shanghai Composite Index's 2.5 per cent on Monday was driven by a pullback in larger stocks and didn't reignite losses across markets.

Uncertainty over China's outlook has stoked market volatility the past month, with the country's surprise devaluation of the yuan Aug 11 igniting a rout in the riskiest investments. Chinese officials predicted stabilisation in the stock and currency markets at the weekend, while the government statistician revised the reading on economic growth down by 0.1 percentage point Monday, to 7.3 per cent.

BLOOMBERG