Asia cheered by China, European stimulus

[SYDNEY] Asian share markets followed the dollar higher on Monday as the prospect of further policy stimulus in China and Europe whetted risk appetites while sending the euro skidding.

The single currency was matching 28-month lows in early trade having shed 1.2 per cent on Friday when European Central Bank President Mario Draghi surprised by declaring his commitment to fighting deflation.

That came hot on the heels of an unexpected cut in interest rates from the People's Bank of China, and sources told Reuters Beijing was ready to ease further to head off slowing inflation. "The big change is how much more supportive we expect major central banks to be. A mild pickup in growth, low inflation and supportive monetary policy all bode well for risk assets," said analysts at Barclays. "We are especially bullish on Japanese equities, currency hedged. The Japan macro trade has far more room to run." Tokyo's market was closed for a holiday on Monday, but MSCI's broadest index of Asia-Pacific shares outside Japan gained 0.24 per cent. Australia's main index climbed 0.9 per cent.

The Dow and S&P 500 both added 0.5 per cent on Friday, while the Nasdaq put on 0.24 per cent. Germany's DAX and France's CAC rose nearly 3 per cent in anticipation of more action by the ECB. "We will do what we must to raise inflation and inflation expectations as fast as possible," Draghi told an audience of bankers in Frankfurt, seemingly inching closer to outright purchases of government bonds.

The comments took a heavy toll on the euro which was down at US$1.2367 having shed almost two cents on Friday. That was just a whisker away from a two-year low of US$1.2358 plumbed earlier in the month.

Against the yen, the euro fetched 145.77, having dropped from a high of 148.43 on Friday.

The greenback was at 117.81 yen, off a seven-year high of 118.98 set last week. It faded somewhat on Friday after Japanese Finance Minister Taro Aso said the yen's recent fall was "too rapid" and undesirable.

The euro nursed particularly heavy losses against the Australian dollar, which climbed after China surprised with its interest rate cut. It traded at A$1.4239 after shedding nearly 2 per cent.

Sources said China's leadership and central bank were ready to cut rates again and loosen lending restrictions, concerned that falling prices could trigger a surge in debt defaults, business failures and job losses.

The cut in rates was the first in more than two years and reflected a change of course by Beijing which had finally decided that a bold monetary policy step was required to stabilise the world's second-largest economy.

In commodity markets, oil edged higher ahead of a key meeting of OPEC on Thursday amid much uncertainty whether producers would agree on a meaningful cut in output to support prices. Brent was up 33 US cents at US$80.69 a barrel, while US crude gained 18 US cents to US$76.69.

Gold was firmer at US$1,201.52 an ounce, as traders cheered the prospect of more global stimulus.


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