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Asia: Stocks take cue from US, rising with bonds ahead of ECB

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[WELLIGNTON] Fresh US equity records lit a fire under the Asian market, with benchmarks from Tokyo to Sydney extending gains as bond yields declined ahead of policy updates from two of the world's biggest central banks.

The regional Asian stock index rose to a more than one-month high as banks drove Australia's S&P/ASX 200 Index to its highest level since August and Japanese shares jumped.

The euro and the yen maintained gains with gold ahead of Thursday's European Central Bank decision, amid mounting speculation policy makers will prolong the euro-zone's asset-buying program. The New Zealand dollar and Korean won strengthened. Yields on Australian bonds fell to their lowest level this month amid a debt rally across developed markets. Oil nudged US$50 a barrel after a surge in US stockpiles.

Expectations the ECB chief Mario Draghi will prolong the bank's bond programme buying beyond March provided a shot in the arm for US equities, which had been struggling to extend the rally ignited by Donald Trump's unexpected election win a month ago.

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Both the S&P 500 Index and the Dow Jones Industrial Average rose to fresh records Wednesday, with investors positioning for a continuation of the ECB's monthly asset purchases of 80 billion euros (S$122 billion). Odds on the Federal Reserve tightening policy further by hiking interest rates remain wedged at 100 per cent, according to Fed funds futures.

"There is a real risk of unpleasantness in European bond, equity and currency markets if Draghi doesn't at least meet expectations," said Sharon Zollner, a senior economist in Auckland at ANZ Bank New Zealand Ltd.

"The market is optimistic that the ECB will extend its quantitative easing programme at current levels for a further six months."

As well as the ECB review, markets will be digesting an update on Chinese trade data, while Bank of Japan Governor Haruhiko Kuroda will speak at a party for economists. Final third-quarter data showed Japan's economy expanded less than was projected, growing an annualised 1.3 per cent after economists predicted a rate of 2.3 per cent.

Stocks

The MSCI Asia Pacific Index climbed by 0.8 per cent as of 10:01am Tokyo time, rising for a third day as Japan's Topix index gained 1.1 per cent.

Banks and mining companies drove the S&P/ASX 200 up 1.2 per cent in Sydney, set for its highest close since Aug 24. New Zealand's S&P/NZX 50 Index added 0.2 per cent after falling last session.

Futures on the Hang Seng Index in Hong Kong climbed more than 0.4 per cent with those on the Hang Seng China Enterprises Index in most recent trading, while contracts on the FSTE China A50 Index gained 0.3 per cent.

S&P 500 Index futures were little changed at 2,232.

Telephone and property stocks drove the S&P 500 to its new all-time high Wednesday, with health-care shares the only decliners among 10 industry groups after President-elect Mr Trump said that he opposed high drug prices.

Currencies

The euro was steady at US$1.0757 after gaining 0.3 per cent last session, while the yen held at 113.81 per US dollar following a 0.2 per cent advance.

The kiwi climbed 0.5 per cent, touching an almost four-week high, as Reserve Bank of New Zealand Governor Graeme Wheeler said he was likely done with rate cuts and the government raised growth projections.

The won added 0.6 per cent in a third rising day.

The Bloomberg Dollar Spot Index, a gauge of the greenback against 10 major peers, was little changed after swinging between gains and losses all week.

Bonds

Australian 10-year bonds led the advance in Asia, with yields falling by six basis points, or 0.06 percentage point, to 2.74 per cent.

Similar maturity New Zealand debt yielded 3.20 per cent, down five basis points.

Yields on Treasuries due in a decade rose by one basis point to 2.35 per cent after falling by five basis points on Wednesday.

Commodities

West Texas Intermediate crude edged up by 0.6 per cent to US$50.05 a barrel after sliding 2.3 per cent last session.

Oil supplies at Cushing, Oklahoma, the biggest US storage hub, climbed by the most since 2009 last week, fuelling concern that American shale producers will fill the gap created by the Opec-led deal to curb output.

Gold for immediate delivery rose 0.2 per cent to US$1,176.33 an ounce after gaining 0.4 per cent on Wednesday.

BLOOMBERG

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