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Asia: Stocks rebound amid Fed calm before BOJ with oil above US$45

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[WELLINGTON] Asian stocks rallied, snapping their longest slump since February amid speculation the Bank of Japan will boost stimulus and after US policy makers reiterated their gradual approach to raising interest rates. Bonds climbed with New Zealand's dollar.

The regional equity benchmark advanced for the first time in five days as Japan's Topix index rallied from a one-week low, while crude oil's return to more than US$45 a barrel fueled gains in Australian mining and energy stocks.

Ten-year Australian bonds climbed the most since February with US Treasuries halting a seven-day selloff after the Federal Reserve's post-meeting policy statement.

The Kiwi rose more than one per cent on the local central bank's decision to stand pat on borrowing costs. Copper and aluminum jumped.

In what was viewed as a market highlight in a central-bank-heavy week, the Fed held the line on benchmark borrowing costs for the third straight meeting, maintaining a sense of caution despite evidence of improvement in the US labour market.

The Reserve Bank of New Zealand and Brazil's central bank followed suit, also keeping key rates on hold, leaving it to the BOJ to round out the week with a potential increase in stimulus.

Oil's two-day, 6.3 per cent surge has also supported sentiment, with the drop in American crude supplies soothing concern over a global glut that has dictated price moves all year.

"The Fed meeting result was as expected, and the market's neither surprised nor disappointed," Mitsushige Akino, executive officer at Ichiyoshi Asset Management Co in Tokyo, said by phone.

"The market consensus is that the BOJ will double its ETF purchases to 6 trillion yen (S$73 billion) and apply negative interest rates to loans to financial institutions," he said, referring to exchange-traded funds.

"If the actual easing is more than this, stocks will rise, if it's below expectations, stocks will likely fluctuate, and if there's no additional easing the Nikkei could fall."

Stocks

The MSCI Asia Pacific Index rose 0.4 per cent as of 9:25 am Tokyo time, with the Topix halting a three-day drop to advance one per cent. The Nikkei 225 Stock Average climbed 1.1 per cent, led by manufacturers and exporters.

Japan issues a swathe of economic dataahead of the BOJ's statement. The first round of reports showed the nation's jobless rate unexpectedly fell to 3.2 per cent, while core consumer prices dropped a more-than-predicted 0.3 per cent in March from a year earlier. Data on retail trade and factory output is due later on Thursday.

The Kospi index in Seoul climbed 0.3 per cent despite a 0.7 per cent drop in shares of Samsung Electronics Co after it reported earnings.

Australia's S&P/ASX 200 Index increased 0.4 per cent, amid gains of more than 1.5 per cent in raw-materials producers and energy shares, while New Zealand's S&P/NZX 50 Indexclimbed 0.2 per cent, halting a three-day decline.

Futures on the Standard & Poor's 500 Index added 0.1 per cent following the benchmark's 0.2 per cent increase Wednesday, while an after-market surge in shares of Facebook Inc, which reported better-than-estimated earnings, underpinned a 0.2 per cent climb in Nasdaq 100 Index futures.

Hang Seng Index futures added 0.3 per cent in Hong Kong, while contracts on the Hang Seng China Enterprises Index, which tracks mainland shares listed in the city, advanced 0.4 per cent.

Bonds

Australian sovereign debt led the early charge higher in Asia, with 10-year yields sliding nine basis points, or 0.09 percentage point, to 2.51 per cent. Rates on similar maturity New Zealand notes slipped four basis points to 2.88 per cent following the eight basis-point tumble in Treasury yields Wednesday. Japanese yields were down three basis points to negative 0.079 per cent.

US policy makers are weighing when to tighten policy again after raising rates in December for the first time in almost a decade. Central-bank optimism over economic growth and inflation may renew policy divergence between a tightening Fed and officials overseas.

The Federal Open Market Committee omitted previous language on global economic and financial developments continuing to pose risks, instead saying it will "closely monitor" the situation, according to the statement released Wednesday following a two-day meeting in Washington.

"They've reassured the market it's going to be a slow and gradual pace and that they expect the economy to improve moderately," said Michael Arone, the Boston-based chief investment strategist at State Street Global Advisors' US intermediary business. The firm oversees US$2 trillion.

The Fed statement "was about as expected and they made their comments as wide in scope as possible and as a result there's not much you can grasp onto to say they're going to change their path," he said.

Odds of a Fed rate hike in June ticked up to 21 per cent, from 19.6 per cent a week ago but down from 38 per cent a month ago, according to Fed funds futures tracked by Bloomberg.

BLOOMBERG