China holiday brings respite as stocks rally, havens backtrack

[HONG KONG] Asian stocks rose for the first time this week as a two-day holiday in China gave investors relief from a market that has whipsawed world trading over the past two weeks. The yen led a pullback in safe-haven assets.

A rebound in US and European equities opened the door to Asia's rally, with Japanese shares rising from a one-week low, aided by weakness in the yen. Oil see-sawed as investors weighed optimism over the US economy with data showing an increase in American crude stockpiles. The euro extended losses amid a resurgence in inflation concerns before policy makers meet Thursday.

"A major source of market disruption is sidelined as markets in China are now closed for the week," Michael McCarthy, chief market strategist in Sydney at CMC Markets, said in an e- mail. "Asia-Pacific investors are anticipating relief today." Buying by state-backed funds ensured the Shanghai Composite Index recovered into the close Wednesday, buoying sentiment from Europe to the US and igniting a rebound in global stocks. With the spotlight off China until next week, attention shifts back to the outlook for US interest rates. Friday's payrolls report is expected to color expectations over whether the Federal Reserve will start raising key borrowing costs as soon as this month.

The MSCI Asia Pacific Index added 0.6 per cent by 10:14 am in Tokyo as Japan's Topix index jumped 1.8 per cent, leading gains in the region. S&P 500 futures were little changed after the US benchmark's 1.8 per cent recovery. Copper advanced a second day and New Zealand's dollar strengthened, while the yen extended last session's 0.8 per cent slide. The euro was at US$1.1220 after data Wednesday indicated wholesale prices in the region were declining.

Global equity volatility climbed to its highest level since 2011 earlier in the week, as signs China's economy may be headed for a hard landing fueled anxiety over the global outlook. While losses in the Shanghai Composite have been mitigated by regulators ahead of this week's holiday, the gauge's movements have held sway over sentiment toward equities around the world.

Australia's S&P/ASX 200 Index erased early gains Thursday, trading down 0.4 per cent, while the Kospi index in Seoul climbed 0.5 per cent. New Zealand's NZX 50 Index added 0.2 per cent, rising for the first day this week, and Malaysia's benchmark also advanced.

Signs of growth in the US also aided the stock rebound there. The Fed's Beige Book indicated the economy expanded across most regions and industries in the past two months, based on reports gathered on or before Aug 24. The nonfarm payrolls report will provide the last major data point before Fed policy makers meet from Sept 16-17.

The absence of any negative newsflow related to China bolstered the kiwi and its Australian counterpart, with New Zealand's currency adding 0.3 percent after a bigger-than- expected increase in building construction. The Aussie held onto Wednesday's 0.3 percent rebound, while yields on Australian bonds due in a decade rose two basis points to 2.71 percent.

The euro held Wednesday's 0.8 percent retreat, losing another 0.1 percent ahead of the European Central Bank meeting. The yen dropped 0.2 percent to 120.50 per dollar after strengthening earlier in the week.

The Korean won and Malaysian ringgit weakened at least 0.5 percent after the dollar reasserted itself late Wednesday. The Bloomberg Dollar Index, a gauge of the U.S. currency against 10 major peers, rose 0.1 percent after gaining 0.3 percent last session.

West Texas Intermediate oil dropped 0.4 per cent to US$46.05 a barrel after gaining 1.9 per cent Wednesday and sliding 7.7 per cent the day before. Prices tumbled earlier in the Wednesday session as the Energy Information Administration said US crude stockpiles rose by 4.67 million barrels last week, the most since April.

Copper for three-month delivery rose 0.1 per cent to US$5,124.50 a metric ton in London, while gold for immediate delivery slipped 0.1 per cent to US$1,133.18 an ounce after snapping a three-day gain to fall 0.6 per cent Wednesday.

BLOOMBERG