Asian futures rise amid late US rally while yen holds advance

[TOKYO] Asian investors took heart from a late-in- the-day rally in US stocks, with futures on indexes from Japan to Australia signaling gains as the worst quarter for global equities since 2011 comes to a close.

Futures foreshadowed a 1.7 per cent rebound in the Nikkei 225 Stock Average, which slid to the lowest level since January Tuesday amid an Asia-wide equity selloff as concern over China's slowdown took hold in markets once again. Copper futures rallied, while crude oil fell as traders looked ahead to data on US supplies due Wednesday. The yen held gains before reports on Japanese retail trade and factory output.

"Risk sentiment stabilised overnight after a rather torrid session in Asia," Raiko Shareef, a markets strategist in Wellington at Bank of New Zealand Ltd, said in an e-mail to clients. "But the stabilisation in risk sentiment looks relatively tentative to us. We'd be wary of another deterioration in Asia today as funding costs spike in China ahead of a week-long holiday." With stocks in Asia headed for their worst quarter since the collapse of Lehman Brothers Holdings Inc, the five-day holiday that starts Thursday in China will provide a reprieve from a country that has been at the epicenter of the global turmoil since devaluing its currency in August. While a jump in consumer confidence helped US stocks erase losses, implied volatility remains almost double its average over the past year as uncertainty over China and the Federal Reserve's next move keep investors on tenterhooks.

Futures on the Standard & Poor's 500 Index added 0.1 per cent by 8:02 am Tokyo time. The US benchmark reversed a drop of as much as 0.5 per cent to end Tuesday up 0.1 per cent. The yen was little changed at 119.80 per dollar after rising 0.7 per cent the past two days, helping Japan's currency to become the best performer among major peers the past three months. Copper futures added 0.3 per cent, as US oil continued to see- saw, falling 0.7 per cent after rising Tuesday.

Selling in biotech and technology stocks continued in the US, sending the Russell 2000 Index to its longest slump since 2006 and briefly pushing the Nasdaq Composite below its August close. Ten-year Treasuries climbed, with yields sinking to a one-month low.

"When we have spikes in volatility, like we did at the end of August, that's normally followed by some additional choppiness until it peters out," said Kevin Caron, a market strategist and portfolio manager who helps oversee US$170 billion at Stifel Nicolaus & Co in Florham Park, New Jersey. "It's not uncommon to see this around changes in direction for key things like monetary policy. We still have this lingering volatility that we're working through." Futures on Australia's S&P/ASX 200 Index were up 0.9 per cent in most recent trading, while contracts on Hong Kong's Hang Seng and Hang Seng China Enterprises indexes climbed at least 0.7 per cent. FTSE China A50 Index futures gained 0.6 per cent following a 2 per cent drop in the Shanghai Composite Index Tuesday. Markets in South Korea resume Wednesday after a two-day holiday.

BLOOMBERG